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Absolute Return Tst (ABR)

Absolute Return Tst

Final Results
RNS Number : 0075W
Absolute Return Trust Limited
21 July 2009
 

SUMMARY INFORMATION


Structure

Absolute Return Trust Limited (the 'Company') was incorporated in Guernsey on 21st January 2005 as a closed-ended investment company. The Company's Redeemable Participating Preference Shares were listed on the London Stock Exchange on 23rd February 2005, when it commenced business. 


Since incorporation up to 31st March 2009 the Company has raised the following capital:









£












Capital raised at launch of the Company




66,000,000


 - 

Capital raised since launch of the Company to 31st March 2009


198,511,731


20,912,654








 


 











Total capital raised by the Company to 31st March 2009


264,511,731


20,912,654








 


 











Shares in issue as at 31st March 2009:


















Number of Shares











- Sterling Redeemable Participating Preference Shares




218,570,291

- Euro Redeemable Participating Preference Shares






22,446,726


Investment Objective and Policy

The Company's investment objective is to achieve a target return of three month Sterling LIBOR plus five per cent. over a rolling five year period, coupled with low volatility. Capital preservation is a priority. The Company's investment policy is to invest in a diversified portfolio of hedge funds.


Manager and Investment Advisor 

The Manager of the Company is Fauchier Partners Management Limited (the 'Manager') and the Investment Advisor is Fauchier Partners LLP (the 'Investment Advisor').


Financial Highlights 



31.03.2009


31.03.2009


31.3.2008


31.3.2008


Sterling


Euro


Sterling


Euro


Shares


Shares


Shares


Shares









Total Net Assets

£256,746,554


€19,669,048


£260,828,902


€18,525,927

Net Asset Value per Share

117.5p


87.6¢


131.0p


97.6¢

(Decrease)/Increase in Net Asset Value *

(10.3%)


(10.2%)


12.1%


(0.7%)

Mid-Market Share Price

92.0p


81.5¢


130.5p


101.0¢

(Discount)/Premium to Net Asset Value

(21.7%)


(7.0%)


(0.4%)


3.5%


(Decrease)/Increase in Net Asset Value shown is for the full year except for the column referring to 31st March 2008 Euro Shares which is for the period from 31st January 2008 (the date of issue of those shares) to the year end (31st March 2008)


CHAIRMAN'S STATEMENT 


Introduction

Over the year to 31st March 2009 financial markets have experienced enormous turmoil, leading to government intervention to provide both capital and liquidity for the financial system on an unprecedented scale. While it now appears that this intervention has started to create a degree of stability in the banking system, great uncertainty remains, particularly with regard to the prospects for the global economy over the coming years.


The hedge fund sector has been under considerable pressure over this period, with funding and liquidity for hedge funds becoming more restricted and more expensive, and temporary restrictions on short-selling negatively affecting the ability of hedge funds to manage a number of their strategies. Poor returns and concerns over gearing and liquidity have led to substantial redemptions by many investors, and not all hedge funds have been able to meet redemptions immediately, leading to the imposition of restrictions on redemptions, particularly by those funds whose underlying assets are less liquid.


In these extraordinarily difficult markets the Company's portfolio has registered a negative return over the year to 31st March 2009. The Company's share price fell sharply in the period from September to December 2008, trading at a wide discount to Net Asset Value. Since the beginning of 2009 returns have turned positive and, with more constructive market sentiment, the Company's share price has shown substantial improvement.


In the course of the year, the Company raised additional funds by way of C share issues amounting to £28.1 million and €1.9 million.  These shares have since been converted into redeemable participating preference shares following the investment of the proceeds of the issue.

  

Results

Over the twelve months to 31st March 2009 the Net Asset Value of the Company's Sterling Shares has fallen from 131.0p per Share on 31st March 2008 to 117.5p per Share on 31st March 2009, representing a decline of 10.3 per cent. Over the same period the Net Asset Value of the Company's Euro Shares has fallen from 97.6¢ per Share to 87.6¢ per Share (a decline of 10.2 per cent.) 


Following this period of weak performance, the growth in the Company's Net Asset Value since its inception in March 2005 has been 4.4 per cent. per annum, equivalent to LIBOR minus 0.6 per cent. per annum, compared with our objective of LIBOR plus 5.0 per cent. per annum over rolling five year periods. 


The volatility of the Company's Net Asset Value has risen to 6.2 per cent. per annum over the same period, which is marginally higher than was set in the Company's objectives. 


Currency hedging

Since its inception the Company has hedged its currency exposure against the US Dollar for both the Sterling and Euro Share Classes and it continues to do so. It has a foreign exchange and borrowing facility in place from its Bankers to enable it to manage the short-term cash flows arising from this hedging programme. The facility now stands at the lower of 20.0 per cent. of Net Asset Value or £40.0 million, after a temporary increase in the fourth quarter of 2008 to accommodate the extreme currency volatility which we saw at that time. The Company also made use of currency options to complement its forward foreign exchange hedging, as the Advisor's report describes in more detail. It remains the Company's policy to hedge its currency exposures and the Board is satisfied that the foreign exchange and borrowing facility remains sufficient to manage the cash flows arising from this activity.


Liquidity

The last twelve months has seen a much greater focus on liquidity, first in the interbank markets and latterly across all asset classes. UK listed funds of hedge funds have needed to pay particular attention to this subject, with the need to cover cash flows arising from currency hedging, and to be in a position to address share price discounts through share buybacks or similar mechanisms while simultaneously suffering from the imposition of redemption restrictions in many underlying funds in which they have been invested. Over this period, the Board has worked closely with the Manager to monitor and manage the Company's liquidity position and the Advisor's report describes the current satisfactory position. The Board and the Manager maintain vigilance to strike an appropriate balance between the returns available from less liquid strategies and the need to maintain flexibility. 


Share Price relative to Net Asset Value

The Company's share price is currently trading at a discount of 12 per cent. to Net Asset Value, having reached much wider discount levels in the extreme conditions in the last quarter of 2008. The Board has reviewed the various discount control mechanisms at the Company's disposal including the semi-annual redemption facility.  In determining what action to take, the Board considered not only the level of the discount, but also the impact on the underlying portfolio of any action to raise liquidity in order to maintain value for shareholders both in the short and longer term.  


The Board concluded that the use of share buybacks was the most appropriate mechanism to employ in this regard, after careful consideration and consultation with a number of major shareholders. Over the period under review and up to today, the Company has repurchased 5.0 million shares. In seeking to buy back shares, the Board have taken account of market conditions and remain mindful of the desire of some of our shareholders to add to their holdings.  


Board and Manager Review

The Board conducted a formal review of the capabilities and controls of the Manager in addition to our regular quarterly reviews of investment performance. On the basis of this review, the Board believes that the continued appointment of the Manager and Investment Advisor remain in the interests of shareholders.


The Board also conducted a self appraisal which concluded that the Board is operating effectively and that its members have an appropriate range of skills and experience. The Board reviewed its remuneration with reference to external benchmarks. It concluded that it was appropriate to make a modest increase in the level of Directors' fees, in order to reflect the increasing workload of the Board and to be in a position to retain or, if necessary, attract new Directors of appropriate calibre. The details of this increase are set out in the Directors' Report.


Outlook

At the time of writing, world markets have recovered from their lows, but the outlook for the world economy remains bleak. Our portfolio has delivered positive performance over the first five months of 2009 and liquidity has been improving gradually.


The fall in the Company's Net Asset Value in the year to 31st March 2009 is disappointing, although it has come at a time of heavy falls and extreme volatility and illiquidity in equity, commodity and corporate bond markets. The Board is encouraged by the better results in 2009 to date and by the quality and resilience of the hedge funds in our portfolio. 


There will no doubt be further challenges over the year ahead but there is evidence that those funds which have weathered the recent market turbulence are profiting from market conditions which now offer considerable opportunity. 


Andrew Sykes

Chairman


INVESTMENT ADVISOR'S REPORT


For the year ended 31st March 2009


Performance

For the year to 31st March 2009 the Company produced a negative return in Sterling of 10.3 per cent. net of fees (negative 10.2 per cent. in Euro). Since the Company first invested in a portfolio of hedge funds on 1st March 2005, it has achieved an average annual compound Sterling return of 4.4 per cent. Over the same period the Company's annualised volatility has been some 6.2 per cent. and its 'beta', namely the extent to which its returns are driven by a particular market or index, to the FTSE All Share Index has been approximately 0.26 and to the Citigroup UK Gilt Index, -0.18, both of which are low.


The 'credit crisis' has been the principal backdrop to the year, and the Company's performance was dominated by the months of September and October (down 5.5 per cent. and 6.4 per cent. respectively in Sterling) at the height of the crisis, during which the global financial system had to be bailed out by taxpayers and Central Bank initiatives. This period has resulted in the Company experiencing its first negative 12 month period since launch. 


The table below gives details of the Company's Sterling Share Class monthly Net Asset Value performance since 1st March 2005 (the launch date):




Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

YTD

2009

1.71%

(0.83)%

  0.67%

  -  

  -

  -  

  -

  -  

  -

  -  

  -

  -  

1.50%

2008

(0.77)%

1.83%

(2.38)%

1.20%

2.13%

1.53%

(1.67)%

(1.01)%

(5.50)%

(6.37)%

(0.80)%

(1.68)%

(13.04)%

2007

1.11%

1.98%

0.83%

1.32%

1.86%

1.06%

2.28%

(0.27)%

1.54%

3.46%

0.52%

1.15%

18.14%

2006

2.08%

(0.10)%

1.34%

1.53%

(0.87)%

(0.54)%

0.26%

0.27%

0.00%

1.09%

1.39%

0.82%

7.46%

2005

  -

  -

(0.04)%

(1.25)%

0.32%

1.62%

1.65%

0.97%

1.96%

(1.31)%

1.11%

1.21%

6.34%


The Portfolio

It is the Company's policy to invest in a diversified portfolio of hedge funds. As at 31st March 2009 the Company had holdings in 28* funds across 10 different strategies, one less fund than at the same time in 2008. Two funds were purchased and three sold, slightly below the typical level of turnover.


Over the year, the proportion of Absolute Value funds included in the Company's portfolio has reduced by approximately 5.0 per cent. to approximately 67.1 per cent. as at 31st March 2009


*Refers to holdings greater than 10 basis points of Assets under Management.


Market Review

The year under review witnessed some of the most difficult market conditions experienced since the Second World War, with extreme levels of volatility in all asset classes and Central Bank intervention across the globe on an unprecedented scale. Equities - as measured by the MSCI World Index - were down by some 37.0 per cent. Spreads on high-yield bonds more than trebled to all-time highs of over 1900 basis points and the VIX Volatility index touched 90 (from mid to low teens earlier in the year) reflecting the highest level of volatility on record. Having reached record highs in the summer, commodities were down sharply with the price of Natural Gas ending the period over 60.0 per cent. lower and Nymex Crude Oil down by more than 50 per cent. Although very volatile, the price of Gold ended the period roughly level with the start at around $920. There  were extraordinary swings in currency markets too, with the dollar and yen rising sharply against the euro and, especially Sterling (38.0 per cent. Sterling depreciation against the US dollar). 


During the first three months of the period under review, markets, although very volatile, enabled underlying hedge fund managers to perform well; the Company's Net Asset Value rose by 4.9 per cent. from 1st April to 30th June 2008. Over the following months conditions became increasingly difficult, culminating in September and October when almost every market and sector went into freefall. The market's distress was led by Financials with the prices of quoted securities of many major banks and other financial institutions gyrating wildly following the failure of Lehman Brothers. At this point, the viability of the financial system itself was brought into question. A number of long-established institutions were unable to withstand the strain; text books on the Great Depression and the role of the lender of last resort were dusted down as liquidity evaporated and banks proved unwilling or unable to lend to one another. To compound these problems, hedge fund managers had to contend both with severe doubt over the viability of market counterparties and with restrictions on their short-selling activities.


These months were two of the most volatile for equity markets in recent times, with many investors selling across the board in a flight to the safe haven of Government Bonds. The widespread sell-off was punctuated with fierce bear market rallies, for example, in September following the announcement of the US Government's plans to purchase mortgage securities from the banking system. None of these rallies lasted longer than a few days. 


There was no solace to be found in commodities which for much of the previous twelve months had been strong. Fearing a world wide recession, commodity-related stocks were sold across the board and suffered significant diminution in value.


In the last quarter of the period, some rationality started to return to the markets as much of the forced de-leveraging that had caused so much trouble in the previous months was completed. The Bank of England and the Federal Reserve initiated stimulus programmes of 'Quantitative Easing' via large buybacks of government securities, reversing the steep sell-off in government bonds in the January and February from their December highs. Equity markets, having fallen steeply, rallied strongly in the final two weeks of the period. Equity market volatility subsided somewhat but still remained at elevated levels, whilst credit spreads narrowed slightly from their all time wide levels to stand at around 1500 basis points at the end of March 2009.



Hedge Fund Strategies 

Most strategies included in the portfolio struggled to make positive contributions to the Company's performance during the year to 31st March 2009 with the exceptions of Short Bias and Fixed Income strategies.


Our Fixed Income manager had an excellent year, benefiting from positions in the front end of the rates curve and in options designed to take advantage of the high volatility.


Given the backdrop of the equity markets, there were great opportunities for our Short Bias managers who managed to generate substantial gains despite the imposition of the temporary short selling ban on Financials and other stocks in September.


The year as a whole saw poor performance by our Macro managers who collectively lost more than any other group of managers. September and October saw the largest of their falls as managers were overwhelmed by the extreme market volatility and violent swings in the technically-driven markets. The bulk of losses came in equity-related trades as well as Emerging Market debt and commodities. Despite some excellent opportunities in the Macro space during the year, several of our Macro funds have disappointed and we are in the process of making substantial changes within this strategy. 


The sentiment-driven equity markets were particularly hazardous for our fundamental stock-picking Equity Hedged Managers. September and October were particularly difficult for the strategy as Financials experienced extreme volatility following the collapse of Lehman Brothers and the temporary short selling ban. However prompt de-leveraging by most managers, reducing both net and gross exposures, meant that they were able to avoid the worst of the equity market fallout.


The year witnessed some of the worst panic and forced-selling of credit securities in memory and despite relatively low exposure levels our Specialist Credit managers struggled to preserve capital. Gains tended to come from short positions, but were more than offset by losses from long positions, especially from managers with exposure to leveraged loans or commodity-related names.


The Volatility Trading strategy struggled as gains generated by our short-term option trading manager were overwhelmed by the losses from our Convertible Bond Arbitrage manager as the convertible bond market collapsed, hit hard by the short-selling ban which restricted investors ability to hedge the equity risk and the increased concerns about the security of convertible instruments in the wake of the collapse of certain financial institutions. 


Currency Hedging

Over the year both the Euro and Sterling weakened significantly and rapidly against the US Dollar. The Company operates a passive currency hedging programme to insulate investors from changes in the foreign exchange rate. Appreciation of the US Dollar generates an increase in the value of the Company's assets which is offset by a commensurate loss in the value of the forward contract. This loss is met in the short-term through the Company's foreign exchange and borrowing facility and ultimately by raising cash by re-balancing the hedge fund assets. At the end of November the Company negotiated a temporary increase in its foreign exchange and borrowing facility to 35.0 per cent. of Net Asset Value in order to have the flexibility to maintain the currency hedge in the face of further US Dollar strengthening. At the same time the Company bought a currency option in order to ensure on-going currency protection in the event of Dollar appreciation above the 35.0 per cent. credit limit during the period over the calendar year end when cash was being raised from hedge fund assets.


Although the option cost had an impact of 1.4 per cent. on the Company's performance (amortized over its three month life) the option was triggered in January with the result that the Company remained fully hedged at all times throughout this turbulent period.


Portfolio Liquidity

The table below shows the expected liquidity profile of the portfolio .


Expected time to cash flow

   Proportion

Within 3 months

     8.3%

3 to 6 months

   70.1%

6 to 12 months

     3.4%

Greater than 12 months

   18.2%

Total

   100.0%


Since the beginning of the calendar year, conditions for the underlying hedge funds impacted by the restricted liquidity in markets have generally improved, particularly for those managers exposed to certain credit and convertible bond markets.


Outlook

After several years of caution with respect to the outlook for Specialist Credit, we now plan to increase our allocation to this strategy. The period of wholesale de-leveraging by investment banks and other participants in the markets who employed gearing has meant that there are some extremely attractive opportunities available. It is still dangerous to be bullish on corporate debt generically but our managers believe that investments in specific instruments will be profitable even in the event of a severe economic recession resulting in corporate default and represent highly attractive risk/reward propositions. 


For the past year share prices have been driven by sentiment not fundamentals, making life very difficult for Equity Hedged managers. Intra-stock correlation has been close to all-time highs but is now beginning to subside as liquidity improves and investors re-focus on corporate cash flows, earnings and valuations. This development should present excellent conditions for fundamental stock pickers.


We are less optimistic than before about the outlook for Macro hedge funds. The Central Bank policy cycle is mature, with less scope for further cuts in interest rates in 2009. Although major asset classes are likely to remain volatile, we do not expect to see pronounced directional trends of the magnitude and velocity of last year.  


Most importantly, we believe that the systemic issues facing the hedge fund industry have significantly abated and that excellent returns can be achieved in each of our favoured areas without the need for substantial balance-sheet leverage.


Fauchier Partners LLP


BOARD MEMBERS


Directors of the Company 


The Directors of the Company, all of whom are non-executive, are listed below.


Andrew Sykes (Chairman), age 51, was a director of Schroders plc from 1998 to 2004, having joined Schroders in 1978. He was responsible for Schroders' private banking and alternative investments businesses, including hedge funds, property, private equity and structured products. Mr Sykes is Chairman of Invista Foundation Property Trust Limited and a non-executive director of Record plc, Smith & Williamson Holdings Limited, Schroder Exempt Property Unit Trust and JPMorgan Asian Investment Trust plc.

Nicholas Fry, age 62, was a director of S.G. Warburg & Co. from 1983 to 1995 and of SBC Warburg (now part of UBS AG) from 1995 to 1996, having joined S.G. Warburg & Co. in 1976. Mr Fry was responsible for a broad range of public takeover, merger and acquisition, capital markets and general financial advisory work, mainly for large listed companies in the UK and overseas. He was a partner of KPMG from 1998 to 2002 and Vice Chairman of KPMG Corporate Finance until March 2005. He is a non-executive director of Brixton plc, Blackrock Smaller Companies Trust plc and Pochin's PLC. He is a Chartered Accountant.


Robert King, age 46, is a director of Cannon Asset Management Limited, which he joined in February 2007. Prior to this he was a director of Northern Trust International Fund Administration Services (Guernsey) Limited where he worked from 1990 until February 2007, specialising in the administration of offshore open and closed-ended investment funds. He has been in the offshore fund administration industry since 1986. He holds a number of board appointments in other investment companies.


Nicholas Moss, age 49is a founding member of the Virtus Group, a Guernsey based fiduciary, corporate services and investment consulting business. Prior to establishing Virtus, Nicholas was a managing director within the Rothschild Trust Group in Guernsey, where he spent 16 years structuring and administering complex onshore and offshore trusts for corporates and ultra high net worth families. He has wide experience in the selection of investment managers for his clients and the subsequent evaluation and monitoring of these portfolios. He holds a number of non-executive Board appointments including the London listed Rutley European Property Limited, and BH Global Limited. Nicholas is a Chartered Accountant and a Guernsey resident.


Robin Rumboll, age 69, was a partner in Coopers & Lybrand in Jersey from 1965 to 1985 specialising in audit and compliance functions within the banking and investment management sector. In addition, he served as the international audit liaison partner and was responsible for introducing global audit standards. From 1981 to 1996 he was an elected member of the States of Jersey and held numerous senior positions within the legislature, including the Presidency of the Education Committee and the President of Jersey Telecoms. He currently holds a number of non-executive directorships within the financial services sector.


All the Directors are independent of the Manager.


DIRECTORS' REPORT


The Directors present their Annual Report and Audited Financial Statements for the year ended 31st March 2009 which have been properly prepared in accordance with The Companies (Guernsey) Law, 2008.


Business Review


Principal activity

Absolute Return Trust Limited (the 'Company') is a Guernsey registered closed-ended investment company listed on the London Stock Exchange. Trading in the Company's Redeemable Participating Preference Shares commenced on 23rd February 2005. On 25th May 2006 the Company issued 38.0 million Sterling C Shares at a price of 100p per Share and on the same day trading in those shares commenced. On 30th June 2006 the Sterling C Shares were converted into 34,371,000 new Sterling Redeemable Participating Preference Shares. 


On 31st January 2008 the Company issued 110.8 million Sterling C Shares at a price of 100.0p per Share and 18.9 million Euro C Shares at a price of 100.0¢ per Share. On 14th March 2008 the Sterling C and Euro C Shares were converted respectively into 82,758,201 and 18,977,000 new Redeemable Participating Preference Shares. 


On 28th March 2008 the Company issued a further 16,082,779 new Sterling Redeemable Participating Preference Shares at a price of 134.0p per Share.


On 27th June 2008 the Company issued 1,897,700 Euro Redeemable Participating Preference Shares at a price of 102.0¢ per Share. These Shares were listed on the London Stock Exchange on 2nd July 2008.


On 1st October 2008 the Company issued 28.1 million Sterling C Shares at a price of 100.0p per Share. These Sterling C Shares were subsequently converted into 21,929,496 new Sterling Redeemable Participating Preference Shares on 28th October 2008. These Shares were listed on the London Stock Exchange on 3rd November 2008


Investment Objective and Policy

The Company's investment objective is to achieve a target return of three month Sterling LIBOR plus five per cent. over a rolling five year period, while keeping annualised volatility below 6.0 per cent. Capital preservation is a priority. The Company's investment policy is to invest in a diversified portfolio of hedge funds whilst hedging all foreign currency assets back into Sterling.  A foreign exchange and borrowing facility is available to the Company as described in Note 11.


Results

The results for the year are set out in the Income Statement. The Directors do not propose a dividend for the year.


In the year to 31st March 2009, the Sterling Share Class Net Asset Value per Share declined by 10.3 per cent., while the Euro Share Class Net Asset Value per Share declined by 10.2 per cent. The Investment Advisor's Report includes a review of developments during the year, as well as information on the investment activity in the Company's portfolio.


Key Performance Indicators ('KPIs')

The Board uses two main financial KPIs to monitor and assess the performance of the Company. These KPIs are:

  • Performance compared to LIBOR

This is the most important KPI for the measurement of investment returns.


  • Annualised volatility

This is the most important KPI for measuring the amount of risk being taken by the Manager.


Since inception, the Company has delivered a return of 4.4 per cent. per annum, which is below the rolling five year target of Sterling LIBOR plus 5.0 per cent. per annum. Volatility over this period has been 6.3 per cent. per annum, which is marginally higher than the Company's guideline ceiling of 6.0 per cent. per annum.


The Board also monitors the performance of the Company against its peers.


Discount/Premium to Net Asset Value

The Board monitors the level of the share price discount/premium to Net Asset Value. The Board has a number of discount control mechanisms at its disposal which are set out in Note 15.  


Shareholder Information

The Company announces its unaudited Net Asset Value on a monthly basis; estimated Net Asset Values are also provided by the Manager weekly. A monthly report on investment performance is published on the Company's website www.absolute-funds.com. In accordance with the Listing Rules the top ten holdings are announced to the London Stock Exchange each quarter.


Principal Risks

With the assistance of the Administrator and the Manager the Board has drawn up a risk matrix, which identifies the key risks to the Company. These fall into the following broad categories:


  • Investment Risks: The Company is exposed to the risk that its portfolio fails to perform in line with the Company's objectives if it is inappropriately invested. The Board reviews reports from the Manager at each quarterly Board meeting, paying particular attention to the diversification of the portfolio and to the performance and volatility of underlying investments. The Board also reviews reports provided by the Manager at each quarterly Board meeting on the sources of return and the correlations between individual investments.

  • Operational Risks: The Company is exposed to the risks arising from any failure of systems and controls in the operations of the Manager or the Administrator. The Board annually receives reports from the Manager and Administrator on their internal controls and reviews pricing reports covering the valuations of underlying investments at each quarterly Board meeting.  

  • Accounting, Legal and Regulatory Risks: The Company is exposed to risk if it fails to comply with the regulations of the UK Listing Authority or if it fails to maintain accurate accounting records. The Administrator provides the Board with regular reports on changes in regulations and accounting requirements.

  • Financial Risks: The financial risks, including market, credit and liquidity risk faced by the Company are set out in Note 22. These risks and the controls in place to mitigate them are reviewed at each quarterly Board meeting.  


Manager and Investment Advisor

The Manager is entitled to a management fee of 1.0 per cent. per annum calculated monthly on the gross assets of the Company. In addition, the Manager will also be entitled to a performance fee if the Net Asset Value per Share for each Share Class at the end of a performance period (31st March each year) exceeds certain conditions as set out in Note 7.


The Board has reviewed the performance and capabilities of the Manager and is satisfied that the continued appointment of Fauchier Partners Management Limited and Fauchier Partners LLP as Manager and Investment Advisor respectively is in the interest of shareholders.


Directors

The Directors of the Company are listed below. It is the Board's policy that directors offer themselves for re-election after no more than three years in office.


Directors' and Other Interests

As at 31st March 2009, Directors of the Company held the following numbers of Redeemable Participating Preference Shares beneficially:


Directors

 

 

 

 

 


Shares

 

Shares

 

 

 

 

 

 


31.3.2009 

 

31.3.2008

 

 

 

 

 

 


 

 

 

Andrew Sykes 

 

 

 

 

 


152,790

 

152,790

Nicholas Fry

 

 

 

 

 


160,675

 

160,675

Robert King

 

 

 

 

 


38,150

 

18,670

Nicholas Moss

 

 

 

 

 


Nil

 

Nil

Robin Rumboll

 

 

 

 

 


25,000

 

25,000


Significant Shareholdings

Shareholders with holdings of more than 3.0 per cent. of the Redeemable Participating Preference Shares of the Company at 14th May 2009 were as follows:


 

 

 

 

 

 

 

 

 

 

Percentage

 

 

 

 

 

 

 

 

Number of

 

of Issued 

 

 

 

 

 

 

 

 

Shares

 

Share Capital

Quilter Nominees Limited

 

 

 

 

 

 

 

36,284,390


15.13

Chase Nominees Limited

 

 

 

 

 

 

 

34,976,847


14.59

Securities Services Nominees Limited

 

 

 

 

 

24,481,303


10.21

Rathbone Nominees Limited

 

 

 

 

 

20,492,827


8.55

Nortrust Nominees Limited

 

 

 

 

 

 

13,985,240


5.83

HSBC Global Custody Nominee (UK) Limited

 

 

 

12,176,589


5.08

Smith & Williamson Nominees Limited

 

 

 

 

 

10,026,544


4.18

Lynchwood Nominees Limited

 

 

 

 

 

10,007,039


4.17

Harewood Nominees Limited

 

 

 

 

 

9,871,318


4.12


Those interested directly or indirectly in 3.0 per cent. or more of the issued share capital of the Company will not have different voting rights from other holders of Shares.


Going Concern

The Directors have examined significant areas of possible financial risk including cash requirements arising from foreign exchange hedging activities and possible share redemptions or share repurchases. The Directors noted that in the event that the Company's Shares trade at a discount of more than 5.0 per cent. at each month end over the course of a full financial year, there is a provision for a resolution to be put to the members at the Annual General Meeting for a termination of the Company ('continuation vote'). It has not been the case that a discount of more than 5.0 per cent. has persisted during the year to 31 March 2009 and as a consequence, no such continuation vote will occur. In the event that a discount of greater than 5.0 per cent. prevails during the year to 31st March 2010, a continuation vote may be raised at the following Annual General Meeting (after 31st March 2010). The Board also has the discretion to operate the Redemption Facility, offering shareholders the possibility of redeeming part of their shareholding at the Net Asset Value, if it appears appropriate to do so.

 

After making enquiries and given the nature of the Company and its investments, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements and, after due consideration, consider that the Company is able to continue in the foreseeable future. 


Auditors

A resolution for the re-appointment of Ernst & Young LLP will be proposed at the next Annual General Meeting.


In addition to their fees for the audit of the Annual Financial Statements, Ernst & Young were paid £32,000 for non-audit work performed during the year in connection with the C Share issue. These fees have been written off to the Share Premium Account in accordance with the accounting policy for share issue expenses.


Corporate Governance


Introduction

As a closed-ended investment company registered in Guernsey, the Company is eligible for exemption from the requirements of the Combined Code (the 'Code') issued by the UK Listing Authority. The Board has however put in place a framework for corporate governance which it believes is suitable for an investment company and which enables the Company to comply voluntarily with the main requirements of the Code, which sets out principles of good governance and a code of best practice.


The Board considers that the Company has complied with the provisions contained in Section 1 of the Code throughout this accounting period except where indicated below. The following statement describes how the relevant principles of governance are applied to the Company.


The Board

The Board currently consists of five non-executive Directors, all of whom are independent of the Manager. The Chairman of the Board is Andrew Sykes. In considering the independence of the Chairman, the Board has taken note of the provisions of the Code relating to independence and has determined that Mr Sykes is an Independent Director. As the Chairman is an Independent Director, no appointment of a senior Independent Director has been made. The Company has no employees and therefore there is no requirement for a chief executive.


The Articles of Association provide that unless otherwise determined by ordinary resolution, the number of the Directors shall not be less than two and the aggregate remuneration of all Directors in any twelve month period, or pro rata for any lesser period shall not exceed £150,000 or such higher amount as may be approved by ordinary resolution.


In accordance with Article 75 of the Company's Articles of Association, at each Annual General Meeting one-third of the Directors shall retire from office via rotation. On 12th September 2008 at the 3rd Annual General Meeting of the Company, Robin Rumboll retired as a Director of the Company and being eligible had offered himself for re-election and was re-elected as Director of the Company by the Shareholders. 


The Board holds quarterly Board meetings and the Audit Committee meets at least twice a year. In addition, there were a number of ad hoc meetings of the Board to review specific items between the regular scheduled quarterly meetings. At the Board meetings the Directors review the management of the Company's assets and all other significant matters so as to ensure that the Directors maintain overall control and supervision of the Company's affairs. The Board is responsible for the appointment and monitoring of all service providers to the Company. Between these formal meetings there is regular contact with the Manager and the Investment Advisor. The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Company and should be brought to the attention of the Directors. The Directors also have access to the Secretary and, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company.


Attendance at the Board and Audit Committee meetings during the year was as follows:





Number of Meetings held 


Andrew Sykes 


Nicholas Fry 


Robert King 


Nicholas Moss 


Robin Rumboll 













Board Meetings

6


6


5


6


6


6













Audit Committee












Meetings

3


3


3


3


3


3

Ad-hoc Board 












Meetings

13


 - 

 

1

 

10


11


4













The Board (continued)

The Board has a breadth of experience relevant to the Company and the Directors believe that any changes to the Board's composition can be managed without undue disruption. With any new Director appointment to the Board consideration will be given as to whether an induction process is appropriate.


Statement of Directors' Responsibilities

The Directors are responsible for preparing the Financial Statements in accordance with applicable Guernsey Law and Generally Accepted Accounting Principles. Guernsey Company Law requires the Directors to prepare Financial Statements for each financial year which give a true and fair view of the state of the affairs of the Company and of the total return of the Company for that year and in accordance with the applicable laws. In preparing those Financial Statements the Directors are required to:


- select suitable accounting policies and then apply them consistently;


- make judgements and estimates that are reasonable;


- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and


- prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.


The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statementhave been properly prepared in accordance with The Companies (Guernsey) Law, 2008.  


They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.


The Directors recognise their responsibilities stated below.


Audit Committee

An audit committee has been established consisting of all Directors with Nicholas Fry appointed as Chairman The terms of reference of the audit committee provide that the committee shall be responsible, amongst other things, for reviewing the interim and annual financial statements, considering the appointment and independence of external auditors, discussing with the external auditors the scope of the audit and reviewing the Company's compliance with the Combined Code.


Directors' Statement

So far as each of the Directors is aware, there is no relevant audit information of which the Company's auditor is unaware, and each Director has taken all the steps he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. 


Directors' Remuneration

As all the Directors are non-executive, the Board has resolved that it is not appropriate to form a Remuneration Committee and remuneration is reviewed and discussed by the Board as a whole with independent advice. Directors' remuneration is considered on an annual basis. Directors' remuneration for the year ended 31st March 2009 was as follows; Directors: £21,000 per annum, the Audit Committee Chairman: £23,000 per annum and the Chairman: £29,000 per annum. At a board meeting held on 10th March 2009, the board agreed that from 1st April 2009 each Director be paid a fee of £22,000 per annum, the Chairman be paid a fee of £32,000 per annum and the Audit Committee Chairman be paid a fee of £27,000 per annum. These increases reflect the increasing workload of the Board and are in line with market benchmarks.


Internal Controls

The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the period under review and up to the date of approval of this Annual Financial Report and Audited Financial Statements and is reviewed by the Board and accords with The Combined Code. The Code requires Directors to conduct at least annually a review of the Company's system of internal control, covering all controls, including financial, operational, compliance and risk management.


The Board has reviewed the effectiveness of the systems of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed.  The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.


Relations with Shareholders

The Investment Advisor maintains a regular dialogue with institutional shareholders, the feedback from which is reported to the Board. In addition, Board members will be available to respond to shareholders' questions at the Annual General Meeting.


Nicholas Moss                        Robert King


INVESTMENT POLICY


As at 31st March 2009


The Company's investment policy is to invest in a diversified portfolio of hedge funds. There are no limits to the size of the hedge funds in which the Company may invest and these funds may be closed or open ended. 

Diversification

The Manager seeks to obtain diversification by investing in a number of different hedge funds across various strategies and styles. Although the exact number of funds used may vary over time, the Directors intend that the Company's portfolio will comprise no less than 20 different hedge funds representing a variety of different strategies. In practice, it is expected that the portfolio will include some 30 different funds based in North AmericaEurope and in Asia. The Company may, from time to time, hold cash or cash equivalents at the Manager's discretion. 

Asset Allocation

The Manager, upon the advice of the Investment Advisor, invests the Company's assets in the following principal hedge fund strategy groups:

  • Absolute Value Strategies, which include funds investing in a combination of long and short positions. This group includes (but is not limited to): Macro funds; Equity Long Bias funds; Equity Hedged Low Volatility Funds; Equity Hedged High Volatility funds; Short Bias funds; and Specialist Credit funds;

  • Relative Value Strategies, which seek to exploit anomalies in the pricing of two or more related securities. This group includes (but is not limited to): Event Driven funds; Volatility Trading and Fixed Income funds; and

  • Multiple Strategy funds, which invest in situations combining elements of both Absolute Value and Relative Value approaches.

The Manager, upon the advice of the Investment Advisor, does not adopt a prescriptive approach to strategy allocation and, while the Directors would normally expect the Company's portfolio to be diversified across some 10 strategies, there are no formal target weightings to strategies, although no single strategy would represent more than 50.0 per cent. of the Company's gross assets. (See the Investment Advisor's report for the current strategy allocation.)


The Manager does not attempt to time or predict the direction of markets. Its objective is to allocate to strategies according to its perception of the potential which exists to generate returns in any particular strategy over a given period of time. For example, if there is little merger and acquisition activity, it will be very difficult for hedge fund managers active in this area to generate returns and the emphasis of the portfolio would be altered accordingly.


As an alternative to direct investment in hedge funds, or where hedge funds are closed to new investment, the Manager, on the advice of the Investment Advisor, may invest indirectly through ''managed accounts'' established with portfolio managers with individual investment discretion. Such investments are made in the shares of separately established special purpose companies with limited liability. As the managed accounts are structured as separate limited liability companies, the liability of the Company is, in each case, limited to the value of its shareholding in that special purpose company. Not more than 10.0 per cent. of the Company's gross assets may, in aggregate, be invested in any single managed account or accounts or with any single portfolio manager or fund.

Currency Hedging

The Company invests in underlying hedge fund assets which are predominantly denominated in US Dollars. The Company therefore has an exposure to changes in the exchange rate between Sterling, Euro and the US Dollar which, unhedged, has the potential to have a significant effect on returns. The Directors believe that it is in the best interests of Shareholders that the Company engages on a consistent basis in currency hedging to reduce the risk, as far as possible, of currency fluctuations and the volatility of returns which may result from such currency exposure. This involves hedging those non-Sterling assets relating to the Sterling Share Class into Sterling and non-Euro assets relating to the Euro Share Class into Euro through the use of rolling forward foreign exchange contracts or currency options. Currency hedging transactions are only undertaken in order to mitigate exchange rate exposure and not for speculative purposes.

Gearing

The Company has the ability to borrow up to 20.0 per cent. of its adjusted total of capital and reserves for short-term or temporary purposes as is necessary for the settlement of transactions, to facilitate redemption (where applicable) or to meet ongoing expenses. The Directors have put in place a foreign exchange and borrowing facility for this purpose. The Company does not have any structural gearing. The Company is indirectly exposed to gearing to the extent that investee funds are themselves geared. Cash (if any) will be held in G8 currency-denominated accounts.

General

In accordance with the requirements of the UK Listing Authority, any material change in the investment policy of the Company may only be made with the approval of Shareholders.


TOTEN HOLDINGS


As at 31sMarch 2009


Fund name



No. of shares 






held on 

Fair Value 

% of Total 



Currency

31.3.2009

£ 

Net Assets 







Visium Balanced Offshore Fund, Ltd

USD

15,998.67

14,507,668

5.27

Shepherd Investments International, Ltd

USD

27,228.26

14,488,718

5.27

Lansdowne UK Equity Fund Limited

USD

59,052.45

13,143,967

4.78

OZ Europe Overseas II Fund Ltd

USD

21,683.83

12,902,105

4.69

Vicis Capital Fund (International)

USD

11,622.62

12,500,307

4.55

Highbridge Asia Opportunities Fund, Ltd 

USD

18,782.50

12,253,879

4.46

Highbridge Long/Short Equity Fund, Ltd

USD

10,537.83

12,113,631

4.41

Ascend Partners Fund II, Ltd

USD

144,100.24

11,688,241

4.25

Elm Ridge Value Partners Offshore Fund, Inc

USD

96,975.30

11,524,743

4.19

Fauchier Partners Counterpoint Fund Ltd * 

USD

12,309.09

11,515,341

4.19


In accordance with the Listing Rules, additional information is required where any of the top ten holdings are unlisted. As all of the above are investments in hedge funds which do not pay dividends or publish earnings per share numbers and are included in the accompanying Financial Statements at the stated share of Net Asset Value, the additional information required is as follows:







Proportion





Cost

of capital





£

owned %







Visium Balanced Offshore Fund, Ltd



11,418,657

2.15

Shepherd Investments International, Ltd



14,302,910

0.40

OZ Europe Overseas II Fund Ltd



10,093,906

0.96

Vicis Capital Fund (International)



7,607,277

0.50

Highbridge Asia Opportunities Fund, Ltd 



11,027,536

2.79

Highbridge Long/Short Equity Fund, Ltd



7,574,863

2.67

Ascend Partners Fund II, Ltd



7,857,072

2.47

Elm Ridge Value Partners Offshore Fund, Inc



9,762,140

2.47

Fauchier Partners Counterpoint Fund Ltd * 



6,301,977

7.65


* Fauchier Partners Counterpoint Fund Ltd is classed as a related party as it shares the same Investment Advisor and Manager as the Company.


PORTFOLIO STATEMENT


As at 31st March 2009


 

 

 


 

% of Total 

 

% of Total 


 

No. of shares 

 

Fair 

 

 Net Assets 

 

 Net Assets 


 

held on 

 

Value 

 

held on 

 

held on 

Description

 

31.3.2009 

 

£ 

 

31.3.2009 

 

31.3.2008 


 

 

 

 

 

 

 


Funds

 


 

 

 

 

 


Ascend Partners Fund II, Ltd


144,100.24


11,688,241


4.25



Bay Resource Partners Offshore Fund, Ltd


3,515.20


8,936,130


3.25



Brevan Howard Fund Ltd


66,408.43


11,019,810


4.01



Claren Road Credit Fund Ltd


1.00


2,506,344


0.91



Clarium Capital Fund Ltd


62,955.72


4,450,285


1.62



Criterion Capital Partners Ltd


177,240.00


10,005,988


3.64



Daedalus Offshore Fund


40,721.35


8,551,100


3.11



Drawbridge Global Alpha V Fund Ltd


19,713.05


11,442,877


4.16



Drawbridge Global Macro Fund Ltd


456.58


316,373


0.12



Elm Ridge Value Partners Offshore Fund, Inc


96,975.30


11,524,743


4.19



Explorer Global Fund, Ltd


18,954.52


9,455,512


3.44



Fauchier Partners Counterpoint Fund Ltd * 


12,309.09


11,515,341


4.19



FCOI II Holdings, L.P.


1.00


3,038,573


1.11



Harbinger Capital Partners Offshore Fund I, Ltd

98,321.70


9,191,304


3.34



Highbridge Asia Opportunities Fund, Ltd 


18,782.50


12,253,879


4.46



Highbridge Long/Short Equity Fund, Ltd


10,537.83


12,113,631


4.41



Lansdowne UK Equity Fund Limited


59,052.45


13,143,967


4.78



Lydian Global Opportunities Fund Ltd


18,066.69


5,060,580


1.84



Marathon Vertex Japan Fund Limited


8,437.46


11,352,636


4.13



OZ Europe Overseas II Fund Ltd


21,683.83


12,902,105


4.69



OZ Overseas Fund II, Ltd


87.15


60,798


0.02



Paulson Advantage Plus Ltd


31,394.06


10,096,573


3.67



Perella Weinberg Partners Xerion Offshore Fund Ltd

11,100.00


7,506,805


2.73



Pershing Square International, Ltd


11,650.00


7,749,429


2.82



Shepherd Investments International, Ltd


27,228.26


14,488,718


5.27



Vicis Capital Fund (International)


11,622.62


12,500,307


4.55



Visium Balanced Offshore Fund, Ltd


15,998.67


14,507,668


5.27



Walker Smith International Fund, Ltd


1,490.00


9,662,780


3.51



Wexford Offshore Spectrum Fund


3,531.30


10,681,489


3.88





 

 

 

 

 

 

 

Total investments


 

 

267,723,986

 

97.37

 

88.66

Other net current assets

 

 

 

7,241,821 

 

2.63

 

11.34


 

 

 

 

 

 

 

 


 

 

 

 

 

 

 


Total value of Company (attributable to 

 

 

 

 

 

 

 


Redeemable Participating Preference Shares)

 

 

 

274,965,807

 

100.00

 

100.00


 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

* Fauchier Partners Counterpoint Fund Ltd is classed as a related party as it shares the same Investment Advisor and Manager as the Company.


RESPONSIBILITY STATEMENT


Responsibility Statement of the Directors irespect othe Annual Financial Report and Financial Statements


We confirm that to the best of our knowledge 


(a) The Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and give a true and fair view of the financial position and profit or loss of the Company as at and for the year ended 31st March 2009.


(b) The Annual Financial Report includes information detailed in the Chairman's Statement, Investment Advisor's and Directors' Reports and Notes to the Annual Financial Statements which provides a fair review of the information required by:


(i) DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company; and


(ii) DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of important events that have occurred since the end of the financial year and the likely future development of the Company. 


Signed on behalf of the Board by:

                

Nicholas Moss                        Robert King

            


INDEPENDENT AUDITOR'S REPORT


To the Members of Absolute Return Trust Limited

We have audited the Company's Financial Statements for the year ended 31st March 2009 which comprise the Income Statement, the Statement of Changes in Equity, the Balance Sheet, the Cash Flow Statement and the related Notes 1 to 23. These Financial Statements have been prepared under the accounting policies set out therein.


This report is made solely to the Company's members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body for our audit work, for this report or for the opinions we have formed.


Respective responsibilities of Directors and Auditors

The Directors are responsible for the preparation of the Financial Statements in accordance with applicable Guernsey law as set out in the Statement of Directors' Responsibilities.


Our responsibility is to audit the Financial Statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). 


We report to you our opinion as to whether the Financial Statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also report to you if, in our opinion, the Company has not kept proper accounting records, the Financial Statements are not in agreement with the accounting records or if we have not received all the information and explanations we require for our audit.


We read other information contained in the Annual report and consider whether it is consistent with the Audited Financial Statements. The other information comprises only the Summary Information, Chairman's Statement, Investment Advisor's Report, Board Members, Directors' Report, Investment Policy, Top Ten Holdings, Portfolio Statement, Responsibility Statement, Management and Administration and Glossary of Investment Strategies. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Statements. Our responsibilities do not extend to any other information.


Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the Financial Statements and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.


Opinion

In our opinion the Financial Statements give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the European Union, of the state of the Company's affairs as at 31st March 2009 and of its loss for the year then ended and have been properly prepared in accordance with The Companies (Guernsey) Law, 2008.  


Ernst & Young LLP

GuernseyChannel Islands


Note

The maintenance and integrity of the Absolute Return Trust Limited website is the responsibility of the Directors; work carried out by the auditors does not involve consideration of these matters and accordingly the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 


INCOME STATEMENT 


For the year ended 31st March 2009

 

 

 

 

 

 

1.4.2008 to 

 

1.4.2007 to 

 

 

 

 

 

 

31.3.2009 

 

31.3.2008 

 

Notes

Revenue 

 

Capital 

 

Total 

 

Total 

 

 

£ 

 

£ 

 

£ 

 

£ 

 

 

 

 

 

 

 

 

 

Investment Income

 

 

 

 

 


 


Bank interest income

 

29,536 

 

 

29,536 

 

178,711 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income

 

29,536 

 

 

29,536 

 

178,711 

 

 

 

 

 

 

 

 

 

Net gains on financial assets at fair value

 

 

 

 

 

 

 

through profit or loss

1, 4

 

72,959,221 

 

72,959,221 

 

13,400,987 

(Losses)/gains on foreign exchange

1, 5

 

(97,663,173)

 

(97,663,173)

 

4,270,834 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total (expense)/income

 

29,536 

 

(24,703,952)

 

(24,674,416)

 

17,850,532 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Management fee

6

(2,779,470)

 

 

(2,779,470)

 

(1,497,562)

Performance fee

7

 

 

 

(1,493,259)

Interest expense

 

(172,854)

 

 

(172,854)

 

(82,145)

Other expenses

10

(910,357)

 

(35,494)

 

(945,851)

 

(535,236)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

(3,862,681)

 

(35,494)

 

(3,898,175)

 

(3,608,202)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit for the year

 

(3,833,145)

 

(24,739,446)

 

(28,572,591)

 

14,242,330 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit for the year

 








Sterling Share Class

 

£(3,611,233)

 

£(26,470,012)

 

£(30,081,245)

 

£13,360,620

 

 

 

 

 

 

 

 

 

Loss for the year

 








Euro Share Class

 

€(267,071)

 

€(902,729)

 

€(1,169,800)

 

€(121,787)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange gains on translation reserve

 

£2,414,583 

 

£2,414,583 

 

£977,770 

 

 

 

 

 

 

 

 

 

Earnings per Participating Redeemable 








Preference Share - basic and diluted*; 

















Sterling Share Class


(1.73p)


(12.73p)


(14.46p)


11.71p 










Euro Share Class


(1.29¢)

 

(4.35¢)

 

(5.64¢)


(0.64¢)


* Earnings per Participating Redeemable Preference Share is based on the weighted average number of Redeemable Participating Preference Shares. The weighted average number of Redeemable Participating Preference Shares for the year for the Sterling Share Class and the Euro Share Class respectively were 207,838,173 and 20,761,905 (31st March 2008: 114,096,140 and 18,977,000)


The 'Total' column of this statement represents the Company's Income Statement, prepared in accordance with IFRSThe supplementary 'Revenue' and 'Capital' columns are both prepared under guidance published by the Association of Investment Companies. 

All items in the above statement derive from continuing operations.


STATEMENT OF CHANGES IN EQUITY 


For the year ended 31st March 2009


 

 

 

Redeemable 

 

 

 

 

 

 

 

 

Founder 

Participating 

Share 

Realised 

Unrealised 

 

Other 

 

 

 

Share 

Preference 

Premium 

Capital 

Capital 

Revenue 

Distributable 

 

 

 

Capital 

Shares 

Account 

Reserve 

Reserve 

Reserve 

Reserve 

Total 

 

 

£ 

£ 

£ 

£ 

£ 

£ 

£ 

£ 

Balance brought forward

 

 

 

 

 

 

 

 

at 31st March 2008

21,325 

21,231,448 

10,843,970 

22,121,175 

(3,775,909)

225,156,835 

275,598,846 

 

 

 

 

 

 

 

 

 

 

Total recognised 

 

 

 

 

 

 

 

 

income and expense

 

 

 

 

 

 

 

 

for the year

(63,559,579)

38,820,133 

(3,833,145)

(28,572,591)

Issue of Shares

150 

29,675,824 

29,675,974 

Issue costs

 

 

 

 

 

 

 

 

 

relating to the

 

 

 

 

 

 

 

 

issue of C Shares

(412,672)

(412,672)

Cancellation of Shares

(2)

(1,323,748)

(1,323,750)

Net effect of Shares 

 

 

 

 

 

 

 

 

 

conversion

 

11 

(11)

Transfer to other

 

 

 

 

 

 

 

 

distributable reserve

(21,486)

21,486 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance carried forward at 

 

 

 

 

 

 

 

at 31st March 2009

49,170,841 

(52,715,609)

60,941,308 

(7,609,054)

225,178,321 

274,965,807 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

Net Assets attributable to holders of Redeemable Participating Preference Shares at the end of the year.

 

 274,965,807

 

 

 

 

 

 

 

 

 

 

Net Assets attributable to holders of Founder Shares at the end of the year.

 

 

 - 





 For the year ended 31st March 2008

 

 

 

 

 

 

 

 

 

 

Redeemable 

 

 

 

 

 

 

 

 

Founder 

Participating 

Share 

Realised 

Unrealised 

 

Other 

 

 

 

Share 

Preference 

Premium 

Capital 

Capital 

Revenue 

Distributable 

 

 

 

Capital 

Shares 

Account 

Reserve 

Reserve 

Reserve 

Reserve 

Total 

 

 

£ 

£ 

£ 

£ 

£ 

£ 

£

£ 

Balance brought forward

 

 

 

 

 

 

 

 

at 31st March 2007

10,027 

2,562,149 

13,278,449 

(893,692)

102,224,909 

117,181,844 

 

 

 

 

 

 

 

 

 

 

Total recognised 

 

 

 

 

 

 

 

 

income and expense

 

 

 

 

 

 

 

 

for the year

8,281,821 

8,842,726 

(2,882,217)

14,242,330 

Issue of Shares

11,298 

146,490,260 

146,501,558 

Issue costs

 

 

 

 

 

 

 

 

 

relating to the

 

 

 

 

 

 

 

 

issue of C Shares

 

(2,326,886)

(2,326,886)

Transfer to other

 

 

 

 

 

 

 

 

  distributable reserve

 

(122,931,926)

122,931,926 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance carried forward

 

 

 

 

 

 

 

 

  at 31st March 2008

21,325 

21,231,448 

10,843,970 

22,121,175 

(3,775,909)

225,156,835 

275,598,846 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net Assets attributable to holders of Redeemable Participating Preference Shares at the end of the year

 

 275,598,844

 

 

 

 

 

 

 

 

 

 

Net Assets attributable to holders of Founder Shares at the end of the year 

 

 

 

 

 

 

 

 

 

 

 

 


BALANCE SHEET 


As at 31st March 2009

 

 

 

 

 


 


 

 

 

 

 

31.3.2009 

 

31.3.2008 

 

 

Notes

 

 

£ 

 

£ 

ASSETS

 

 

 

 


 

 

Non-current assets

 

 

 

 


 

 

Financial assets at fair value through profit or loss

 

1, 12

 

 

267,723,986 

 

244,345,587 

Current assets

 

 

 

 


 

 

Cash and cash equivalents

 

11

 

 

12,815,035 

 

12,797,196 

Unrealised gains on open forward foreign 

 

 

 

 


 

 

currency contracts

 

22

 

 

703,399 

 

890,702 

Other receivables

 

13

 

 

1,923,975 

 

22,717,394 

 

 

 

 

 

 

 


Total assets

 

 

 

 

283,166,395 

 

280,750,879

 

 

 

 

 


 

 

EQUITY AND LIABILITIES

 

 

 

 


 

 

 

 

 

 

 


 

 

CURRENT LIABILITIES

 

 

 

 


 

 

Other payables

 

14

 

 

1,696,144 

 

5,010,365 

Unrealised losses on open forward foreign 

 

 

 

 


 

 

currency contracts

 

22

 

 

6,504,444 

 

141,668 

 

 

 

 

 


 


Total liabilities

 

 

 

 

8,200,588 

 

5,152,033 

 

 

 

 

 


 

 

EQUITY

 

 

 

 


 

 

Founder Share Capital

 

15

 

 

 

Redeemable Participating Preference Share Capital

 

15

 

 

 

21,325 

Share Premium Account

 

15

 

 

49,170,841 

 

21,231,448 

Other Distributable Reserve

 

 

 

 

225,178,321 

 

225,156,835 

Retained Earnings

 

 

 

 

616,645 

 

29,189,236 

 

 

 

 

 

 

 


 

 

 

 

 


 


Total equity

 

 

 

 

274,965,807 

 

275,598,846 

 

 

 

 

 

 

 


 

 

 

 

 


 


Total equity and liabilities

 

 

 

 

283,166,395 

 

280,750,879 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Sterling Redeemable Participating Preference 

 

 

 

 


 

 

Shares in issue

 

16

 

 

218,570,291 

 

199,106,550 


 

 

 

 

 

 

 

Number of Euro Redeemable Participating Preference 

 

 

 

 


 

 

Shares in issue

 

16

 

 

22,446,726 

 

18,977,000 

 

 

 

 

 

 

 

 


 

 

 

 


 

 

Net assets attributable to holders of Sterling Redeemable

 

 

 

 


 

 

Participating Preference Shares (per share)

 

16

 

 

117.5p

 

131.0p

 

 

 

 

 


 

 

Net assets attributable to holders of Euro Redeemable

 

 

 

 


 

 

Participating Preference Shares (per share)

 

16

 

 

87.6¢

 

97.6¢

 

 

 

 

 


 

 


CASH FLOW STATEMENT 


For the year ended 31sMarch 2009

 

 

1.4.2008 to 

 

1.4.2007 to 

 

Note

31.3.2009 

 

31.3.2008 

 

 

£ 

 

£ 

Cash flows from operating activities

 


 

 

(Loss)/profit for the year

 

(28,572,591)

 

14,242,330 

Adjusted for:

 


 

 

Gains on financial assets at fair value through profit or loss

(72,959,221)

 

(13,400,987)

Realised and unrealised losses/(gains) on forward foreign 




currency contracts

 

118,544,961 

 

(2,757,620)

Realised gains on currency option contracts

 

(18,505,988)

 

Exchange losses/(gains) on cash and cash equivalents

 

38,783 

 

(535,444)

Exchange gains on translation reserve


(2,414,583)


(977,770)

 

 

 

 

 

 

 


 

 

 

 


 

 

Operating cash flows before movements in working capital

 

(3,868,639)

 

(3,429,491)

Decrease/(increase) in other receivables

 

9,805 

 

(24,149)

(Decrease)/increase in other payables

 

(1,870,381)

 

827,706 

 

 

 

 

 

 

 


 

 

 

 


 

 

Net cash used in operating activities

 

(5,729,215)

 

(2,625,934)

 

 

 

 

 

 

 


 

 

Cash flows from investing activities

 


 

 

Purchase of financial assets at fair value through profit or loss

(50,891,294)

 

(156,894,129)

Payables/(receivables) from Broker

 

20,724,072 

 

(22,628,933)

Sale of investments received in advance

 

1,339,473 

 

Sale of financial assets at fair value through profit or loss

 

97,748,345 

 

47,095,689 

Realised (losses)/gains on currency option 

 


 

 

and forward currency contracts

 

(91,074,311)

 

3,290,074 

 

 

 

 

 

 

 


 

 

 

 


 

 

Net cash used in investing activities

 

(22,153,715)

 

(129,137,299)

 

 

 

 

 

 

 


 

 

Cash flows from financing activities

 


 

 

Proceeds from issue of Redeemable Participating

 


 

 

Preference Shares

 

29,675,974 

 

146,501,558 

Issue costs relating to issue of Redeemable Participating

 


 

 

Preference Shares

 

(412,672)

 

(2,326,886)

Cancellation of Redeemable Participating Preference Shares

 

(1,323,748)

 

Cancellation of Founder Shares

 

(2)

 

 

 

 

 

 

 

 


 

 

Net cash generated from financing activities

 

27,939,552 

 

144,174,672 

 

 

 

 

 

 

 


 

 

Net increase in cash and cash equivalents

 

56,622 

 

12,411,439 

Cash and cash equivalents at beginning of year

 

12,797,196 

 

(149,687)

Exchange (losses)/gains on cash and cash equivalents

 

(38,783)

 

535,444 

 

 

 

 

 

 

 


 

 

Cash and cash equivalents at end of year

11

12,815,035 

 

12,797,196 

 

 

 

 

 

 

 


 

 

Supplementary cash flow information

 


 

 

Cash flows from operating activities include:

 


 

 

 

 

1.4.2008 to 

 

1.4.2007 to 

 

 

31.3.2009 

 

31.3.2008 

 

 

£ 

 

£ 

 

 


 

 

Interest received

 

58,453 

 

154,562 

Interest paid

 

(172,854)

 

(82,145)


NOTES TO THE FINANCIAL STATEMENTS


For the year ended 31sMarch 2009



1.
    ACCOUNTING POLICIES

The following accounting policies have been applied consistently in dealing with items which are considered to be material in relation to the Company's Financial Statements:


Basis of accounting

The Financial Statements have been prepared in compliance with International Financial Reporting Standards (IFRS) adopted for use in the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and as adopted by the European Union.


Standards, interpretations and amendments to published statements not yet effective

At the date of approval these Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective:


IFRS 3 (Revised) - Business Combinations - Comprehensive revision on applying the acquisition method (Effective date - 1st July 2009)

IFRIC 13 - Customer Loyalty Programmes (Effective date - 1st July 2009)

- IFRIC 16 - Hedges of a Net Investment in Foreign Operation (Effective date - 1st October 2009)

- IFRIC 17 - Distributions of Non-Cash Assets to Owners (Effective date - 1st July 2009)

- IFRIC 18 - Transfers of Assets from Customers (Effective date - 1st July 2009)
-    IAS 27 (Revised) - Consolidated and Separate Financial Statements (Effective date - 1st July 2009)
- IAS 39 and IFRS 7 (Amended) - Reclassification of Financial Assets (Effective date - 1st July 2009)
IFRS 7 (Amended) - Improving disclosures about Financial Instruments (Effective date - 1st October 2009)
IAS 39 Eligible hedged items (Effective date - 1st July 2009)

IFRS 7 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments (Effective date 1st January 2009)


Amendments to IFRS 7 were issued by the IASB in March 2009 and become effective for annual periods beginning on or after 1 January 2009 with early application permitted. The amendment to IFRS 7 requires fair value measurements to be disclosed by the source of inputs, using a three-level hierarchy: 

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) 

• Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2) 

• Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). 


In addition the amendment revises the specified minimum liquidity risk disclosures including amongst others: the contractual maturity of non derivative and derivative financial liabilities, and a description of how this is managed.  


The Directors anticipate that the adoption of these Standards in future periods will have no material financial impact on the Financial Statements of the Company.


Presentation of information

In order to better reflect the activities of an investment company and in accordance with the guidance issued by the Association of Investment Companies, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented within the Income Statement.  


Financial instruments 

Financial assets and financial liabilities are recognised on the Company's Balance Sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities, other than those shown at fair value through profit or loss, are measured at amortised cost using the effective interest rate method.


Financial assets at fair value through profit or loss ('investments')

Purchases and sales of investments are recognised on the trade date (the date on which the Company commits to purchase or sell the investment). Investments purchased are initially recorded at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investmentGains and losses on investments sold are shown in Note 4 and recognised in capital in the Income Statement in the period in which they arise. The investments are managed and their performance is evaluated on a fair value basis which is consistent with the Company's documented investment strategies. The information regarding the Company's portfolio is also provided on that basis to the Board.


Other Financial Instruments

For other financial instruments, including other receivablesother payables and unrealised gains or losses on open forward foreign currency contracts, the carrying amounts as shown in the Balance Sheet approximate to fair values due to the short term nature of these financial instruments.


Forward foreign currency and currency option contracts

Forward foreign currency and currency option contracts are derivative contracts and as such are recognised at fair value on the date on which they are entered into and subsequently remeasured at their fair value. Fair value is determined by rates in active currency markets. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.  


Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the Balance Sheet, if and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise assets and settle the liabilities simultaneously. 


Fair value

Investments of the Company consist of shares or units in hedge funds and these are valued at the latest estimate of net asset value from the administrator of the respective hedge fund i.e. most recent price is the best estimate of the amount for which holdings could have been disposed of at the balance sheet date. Gains and losses arising from changes in the fair value of financial assets are shown as net gains or losses on financial assets through profit or loss in Note 4 and recognised in capital in the Income Statement in the period in which they arise.


Derecognition of financial instruments

A financial asset is derecognised when: (a) the rights to receive cash flows from the asset have expired, (b) the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through arrangement'; or (c) the Company has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.


A financial liability is derecognised when the obligation under the liability is discharged or cancelled.


Restatement of comparatives

During the current year some comparatives have been restated to conform with the current year presentation.


Significant accounting judgements, estimates and assumptions 

The preparation of the Company's Financial Statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of income, expenses, assets and liabilities at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the assets or liabilities affected in future periods. Although some of the Company's underlying investments have imposed restrictions on redemptions the Directors believe it remains appropriate to estimate their fair values based on net asset values as reported by the Administrators of the relevant investments. The Directors believe that such net asset values represent fair value because subscriptions and redemptions in the underlying investments occur at these prices at the balance sheet date.


Income

All income is accounted for on an accruals basis and is recognised in the Income Statement. Interest income for all debt instruments is recognised using the effective interest rate method.


Expenses

Expenses are accounted for on an accruals basis. Expenses incurred on the acquisition of investments at fair value through profit or loss are charged to the Income Statement in capital. All other expenses are charged to the Income Statement in revenue. 


Share issue expenses

Share issue expenses of £412,672 (31st March 2008: £2,326,886) incurred as a result of the C Shares issue (as described in Note 15) have been fully written off against the Share Premium Account in the current year.


Cash and cash equivalents

Cash and cash equivalents comprise cash at bank, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value. Overdrafts are shown separately on the Balance Sheet.


Capital reserves

Gains and losses recorded on the realisation of investments and realised exchange differences of a capital nature are transferred to the realised capital reserve. Unrealised gains and losses recorded on the revaluation of investments held at a period end and unrealised exchange differences of a capital nature are transferred to the unrealised capital reserve.


Translation of foreign currency

Items included in the Company's Financial Statements are measured using the currency of the primary economic environment in which it operates (the 'functional currency'). The majority of the Company's Shares are denominated in Sterling (a small number are denominated in Euros) and its operating expenses are incurred in Sterling. While the Company's investments are denominated in US Dollars all exposure to these currencies is hedged by forward foreign currency and currency option contractsAccordingly the Directors regard Sterling as the functional currency. The Company has also adopted Sterling as its presentation currency.


The assets and liabilities of the Company that are denominated in a currency other than the functional currency are translated using the exchange rate as at the balance sheet date. The Statement of Changes in Equity is translated into Sterling for aggregation purposes using an average rate of exchange for the period, with the exception of share capital and the share premium account which are translated at the rate ruling at the date of the transaction and the unrealised gains on investments which are translated at the rates ruling as at the balance sheet date. Exchange differences arising on aggregation are taken to equity and subsequently transferred to net assets attributable to Redeemable Participating Preference Shares.


Translation differences on financial assets held at fair value through profit or loss are reported as part of net gains on financial assets at fair value through profit or loss in the Income Statement in capital.



2.
    TAXATION

During the year, the Company was exempt from taxation in Guernsey under the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and has paid an annual exemption fee of £600. With effect from 1st January 2008, Guernsey's Corporate Tax Regime changed. There is however, no effect on the Company's tax position as a result of this change as the Company will continue to register as tax exempt.



3.
    DISTRIBUTION TO SHAREHOLDERS

The Directors do not expect income (net of expenses) to be significant for the foreseeable future and do not currently expect to declare any dividends. In the event that the net income is significant, the Directors may consider the distribution of net income in the form of dividends. To the extent that any cash dividends are paid, they will be paid in accordance with applicable Guernsey laws and the regulations of the UK Listing Authority. 


The Company has a feature which, subject to a shareholder making an election, may allow a shareholder to benefit from an annual capital distribution dependent on Net Asset Value performance. This will be achieved by way of a partial redemption of shares. The feature operates in each financial period if the Net Asset Value has risen at least 5.0 per cent. over that period On 1st April 2009, no shares were redeemed under this facility relating to the previous year (1st April 2008: Nil shares).



4
.    NET GAINS ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS   

 

 

 

 

 

1.4.2008 to 


1.4.2007 to 

 

 

 

 

 

31.3.2009 


31.3.2008

 

 

 

 

 

£ 


£ 

Net gains on financial assets at fair value through profit or loss 

 




during the year comprise:

 

 

 

 




 

 

 

 

 




Gains realised on investments sold during the year

 

29,937,950 


5,981,347 

Movement in unrealised gains arising from

 

 

 




changes in fair value during the year

 

 

 

43,021,271 


7,419,640 

 

 

 

 

 

 


 

Net gains on financial assets at 

 

 

 

 



fair value through profit or loss

 

 

 

72,959,221 


13,400,987 

 

 

 

 

 

 


 

 

 

 

 

 




 

5.    (LOSSES)/GAINS ON FOREIGN EXCHANGE


 

 

 

 

 

1.4.2008 to 


1.4.2007 to 

 

 

 

 

 

31.3.2009 


31.3.2008

 

 

 

 

 

£ 


£ 

Realised (losses)/gains on forward foreign currency contracts

 

(111,994,882)


2,312,304

Realised gains on currency option contracts

 

 

 

18,505,988 


Unrealised (losses)/gains on forward foreign currency contracts

 

(6,550,079)


445,316

Exchange (losses)/gains on cash and cash equivalents

 

(38,783)


535,444 

Exchange gains on translation reserve

 

 

 

2,414,583 


977,770 

 

 

 

 

 




 

 

 

 

 

 


 

 

 

 

 

 

(97,663,173)


4,270,834 

 

 

 

 

 

 


 

 

 

 

 

 





The Company's investment portfolio is denominated in US Dollars and the currency risk has been hedged with forward foreign currency contracts and currency option contracts. In the course of the year under review the movements in the US Dollar have resulted in the Company's portfolio making gains which were matched by net losses from the forward foreign currency contracts and currency option contracts.



6.
    MANAGEMENT FEE

The Company's manager is Fauchier Partners Management Limited (the 'Manager'). The Manager is entitled to an annual management fee, calculated monthly and payable monthly in arrears, at the rate of 1.0 per cent. of the monthly gross assets of the Company. The Manager is also entitled to reimbursement of certain expenses incurred by it in connection with its duties. The Company's investment advisor is Fauchier Partners LLP (the 'Investment Advisor'). The Manager will be responsible for discharging all fees of the Investment Advisor out of its management fee. During the year ended 31st March 2009 management fees of £2,779,470 were charged to the Company (31st March 2008: £1,497,562) and £233,364 was payable at the year end (31st March 2008: £540,998).



7.
    PERFORMANCE FEE 

The Manager is also entitled to a performance fee if the Net Asset Value per Share for each class of Share at the end of the Performance Period (31st March each year and after adjustments for share issues/redemptions/repurchases);



a)   Exceeds the Net Asset Value 
per Share at the start of the Performance Period by more than the Performance Hurdle; or

b)   Exceeds the highest previously recorded Net Asset Value per Share in respect of which a performance fee was last paid; or  

c)   If a performance fee is yet to be paid, exceeds the higher of 100
.0p per Sterling Share98.7¢ per Euro Shares or the Net Asset 
      Value per Share 
of each Share class as at 31st March 2009 (the 'High Water Mark').


The Performance Hurdle applicable in respect of a Performance Period is 110.0 per cent. of three month Sterling LIBOR compounded quarterly and is pro-rated where the Performance Period is greater or shorter than one year.


If the Performance Hurdle for Performance Period is met, then a performance fee will be calculated and payable to the Manager equal to 10.0 per cent. of the total increase in the Net Asset Value per Share on all share classes in issue at the end of the relevant Performance Period over the Net Asset Value per Share at the start of the relevant Performance Period multiplied by the aggregate number of shares in issue for each share class (having made adjustment for any issue and/or redemption and/or repurchase of shares of each class or other distributions made in respect thereof) at the end of the relevant Performance Period.


As at 31st March 2009 the criteria for performance fees had not been reached and as such no performance fees were charged to the Company during the year (31st March 2008£1,493,259)Performance fees charged for the prior year were unpaid by the Company as at the respective year end.



8.
    ADMINISTRATION FEE

The Company's administrator is Northern Trust International Fund Administration Services (Guernsey) Limited (the 'Administrator'). The Administrator is entitled to receive an annual feeequal to 0.125 per cent. per annum on  the first £50.0 million, 0.10 per cent. per annum on the next £50.0 million and 0.075 per cent. per annum thereafter of the Net Asset Value of the Company, calculated monthly and payable monthly in arrears, subject to a minimum fee of £48,000 per annum. In addition, the Administrator and any of its delegates will also be entitled to reimbursement of certain expenses incurred by them in connection with their duties. During the year ended 31sMarch 2009 administration fees of £250,668 (31st March 2008: £154,227) were charged to the Company and £19,527 was payable at the year end (31st March 2008: £54,426).



9
.    CUSTODIAN FEE

The Company's custodian is Northern Trust (Guernsey) Limited (the 'Custodian').  The Custodian is entitled to receive an annual fee equal to 0.075 per cent. per annum of the Net Asset Value of the Company, calculated monthly and payable monthly in arrears, subject to a minimum fee of £24,000 per annum. In addition, the Custodian will receive £100 per transaction executed. During the year ended 31st March 2009 custodian fees of £207,112 (31st March 2008: £113,555were charged to the Company and £17,502 was payable as at the year end (31st March 2008: £58,694).



10
.    OTHER EXPENSES    

 

 

 

 

 

1.4.2008 to 


1.4.2007 to 

 

 

 

 

 

31.3.2009 


31.3.2008

 

 

 

 

 

£ 


£ 

 

 

 

 

 




Administration fee (Note 8)

 

 

 

 

250,668 


154,227 

Custodian fee (Note 9)

 

 

 

 

207,112 


113,555 

General expenses

 

 

 

 

291,455 


112,908 

Directors' fees (Note 18)

 

 

 

 

115,000 


115,000 

Audit fee

 

 

 

 

46,122 


27,716 

Transaction charges

 

 

 

 

35,494 


11,830 

 

 

 

 

 




 

 

 

 

 

 


 

 

 

 

 

 

945,851


535,236

 

 

 

 

 

 


 

 

 

 

 

 





Included in General expenses for the year ended 31st March 2009 is a fee of £157,500 paid to the Company's bankers in connection with the arrangement of a temporary increase in the facilities available to the Company.


Included within the audit fee is £8,400 for the year ended 31st March 2009 in respect of a review of the interim Financial Statements (31st March 2008: £5,500). 



11.
    CASH AND CASH EQUIVALENTS


 

 

 



31.3.2009 


31.3.2008 

 

 

 



£ 


£ 

 

 

 






Current deposits with banks

 

 



12,815,035 


12,797,196 

 

 

 



 


 

 

 

 






 

 

 



12,815,035 


12,797,196 

 

 

 



 


 

 

 

 







All cash balances attract interest at variable rates.


An uncommitted credit facility covering borrowings and spot and forward foreign exchange was made available to the Company by its bankersThe aggregate amount outstanding under this facilitshould not exceed the lower of:


  • £40.0 million (or the currency equivalent thereof); or

  • 20.0 per cent. of the Net Asset Value of the Company.


The repayment of all monies at any time owing by the Company to the bank is secured by way of a Security Agreement between the Company and its bankers dated 24th February 2005. As detailed in the Security Agreement the investment portfolio of the Company is provided as security against the facility.


12.    FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS


 

 

 

 

 

31.3.2009 


31.3.2008 

 

 

 

 

 

£ 


£ 

 

 

 

 

 




Cost of investments at end of year

 

 

 

204,308,344 


223,951,216 

Cumulative net unrealised gain

 

 

 

63,415,642 


20,394,371 

 

 

 

 

 




 

 

 

 

 

 


 

Fair value at end of the year

 

 

 

 

267,723,986 


244,345,587 

 

 

 

 

 

 


 

 

 

 







13.    OTHER RECEIVABLES


 

 

 

 

 

31.3.2009 


31.3.2008 

 

 

 

 

 

£ 


£ 









Sale of investments awaiting settlement

 

 

 

1,904,861 


Fund purchases awaiting settlement

 

 

 


22,628,933 

Other receivables

 

 

 

 

19,114 


59,542 

Bank interest receivable

 

 

 

 


28,917 

Founder shares

 

 

 

 


 

 

 

 

 




 

 

 

 

 

 


 

 

 

 

 

 

1,923,975 


22,717,394 

 

 

 

 

 

 


 

 

 

 







The Directors consider that the carrying amount of the other receivables approximates their fair value. 


14.    OTHER PAYABLES

 

 

 

 

 

31.3.2009 


31.3.2008 

 

 

 

 

 

£ 


£ 

 

 

 

 

 




Sale of investments received in advance

 

 

 

1,339,473 


Management fee payable

 

 

 

 

233,364 


540,998 

Other creditors

 

 

 

 

123,307 


192,795 

Purchase of investments awaiting settlement

 

 

 


2,783,313 

Performance fee payable

 

 

 

 


1,493,259 

 

 

 

 

 




 

 

 

 

 

 


 

 

 

 

 

 

1,696,144 


5,010,365 

 

 

 



 


 

 

 

 







The Directors consider that the carrying amount of the other payables approximates their fair value.



                15  SHARE CAPIT
AL AND SHARE PREMIUM

 

 

 

 

 

 

 

31.3.2009 

 

31.3.2008

 

31.3.2008

 

 

 

 

 

 

 

Unclassified 

 

Sterling 

 

Euro 

 

 

 

 

 

 

 

Shares 

 

Shares

 

Shares


 

 

 

 

 

 

 

 

£ 

 

Authorised Share Capital

 

 

 

 

 

 

 

 

 

2 Founder Shares of £1.00 each

 

 

 

 

 

2

 

125,000,000 Redeemable Participating

 

 


 

 

 

 

Preference Shares of 0.01p each

 

 

 

12,500

 

125,000,000 Unclassified Shares of 0.01p each

 

 

 

12,500

 

200,000,000 Sterling C Shares of 0.1p

 

 

 

200,000

 

200,000,000 Euro C Shares of 0.1c

 

 

 

 

200,000

Unclassified Shares at no par value

 

 

Unlimited 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

225,002

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



In accordance with the Companies (Guernsey) Law 2008, an Extraordinary General Meeting was held on 24th September 2008 to cancel all of the Company's Authorised Share Capital as at that date. The Authorised Share Capital was replaced by the creation of an unlimited number of Unclassified Shares (as defined in the Company's amended Articles of Incorporation) at no par value. 


The Company is a closed-ended investment company with an unlimited life. The Redeemable Participating Preference Shares are not puttable instruments because redemption is conditional upon certain market conditions and/or Board approval. As such they are not required to be classified as debt under IAS 32.


IFRIC Interpretation 2: 'Members' Shares in Co-operative Entities and Similar Instruments' paragraph 7 states 'Members' share is equity if the entity has an unconditional right to refuse redemption of the members' share.


As defined in the Articles of Association, redemption of Redeemable Participating Preference Shares is at the sole discretion of the Directors, therefore the Redeemable Participating Preference Shares have been classified as equity.


In the event that the Company's Shares trade at a discount of more than 5.0 per cent. at each monthly Net Asset Value calculation date over the course of a full financial year, there is a provision for a resolution to be put to the members at the Annual General Meeting for a termination of the Company ('continuation vote'). It has not been the case that a discount of more than 5.0 per cent. has persisted during the year to 31 March 2009 and as a consequence, no such continuation vote will occur. In the event that a discount of greater than 5.0 per cent. prevails during the year to 31st March 2010, a continuation vote may be raised at the following Annual General Meeting (after 31st March 2010). The Board also has the discretion to operate the Redemption Facility, offering shareholders the possibility of redeeming part of their shareholding at the Net Asset Value, if it appears appropriate to do so. 


The Company operates a Share Buyback Programme whereby it may purchase, subject to various terms as set out in its Articles and in accordance with The Companies (Guernsey) Law, 2008, up to 14.99 per cent. of its existing Share Capital following the admission of the Shares to trading on the London Stock Exchange's market for listed securities. 


Founder Shares were issued for administrative purposes and were fully cancelled during the year.


 

 

 

 

 

1.4.2008 to 

 

 

 

 

 

1.4.2007 to 

 

 

 

 

 

31.3.2009 

 

 

 

 

 

31.3.2008 

 

Sterling 

 

Euro 

 

Total Share

 

Sterling 

 

Euro 

 

Total Share

 

Shares 

 

Shares 

 

Capital 

 

Shares 

 

Shares 

 

Capital 

Issued Share Capital

£ 

 

€ 

 

£ 

 

£ 

 

€ 

 

£ 

 

 

 

 

 

 

 

 

 

 

 

 

Founder Shares of £1.00 each

 

 

 

 

 

 

 

 

 

 

Balance at start of the 












year

 

 

 

 

 

Cancelled during the 

 

 

 

 

 

 

 

 

 

 

 

year

(2)

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of the 

 

 

 

 

 

 

 

 

 

 

 

year






 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Equity Shares

 

 

 

 

 

 

 

 

 

 

 

Redeemable Participating Preference Shares at no par value

 

 

 

 

 

 

(31st March 2008: 0.01p for Sterling Shares and 0.01¢ each for Euro Shares)

 

 

 

 

Balance at start of the 












year

19,911

 

1,898

 

21,325

 

10,027

 

 - 

 

10,027

Issued during the 

 

 

 

 

 

 

 

 

 

 

 

year

 - 

 

190

 

150

 

9,884

 

1,898

 

11,298

Net effect of conversion

 

 

 

 

 

 

 

 

 

 

 

during the year

(30)

 

52

 

11

 

 - 

 

 - 

 

 - 

Transferred to other 



 









distributable reserves

(19,881)


(2,140)


(21,486)


 - 

 

 - 

 

 - 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at end of the 

 

 

 

 

 

 

 

 

 

 

 

year

 - 

 

 - 

 

 - 

 

19,911

 

1,898

 

21,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





1.4.2008 to 



1.4.2007 to 




31.3.2009 



31.3.2008 




Total 



Total 


Sterling 

Euro 

Number 

Sterling 

Euro 

Number 

Issued Share Capital

Shares 

Shares 

of shares 

Shares 

Shares 

of shares 








Founder Shares







Balance at start of the year

 - 

 - 

Cancelled during the year

(2)

(2)

 - 

 - 

 - 

 

 

 

 

 

 

 

Balance at end of the year


 

 

 

 

 

 








Equity Shares







Balance at start of the year

199,106,550

18,977,000

218,083,550

100,265,570

 - 

100,265,570

Issued during the year

21,929,496

1,897,700

23,827,196

98,840,980

18,977,000

117,817,980

Net effect of conversion



 

 

 

 

during the year

(1,063,755)

1,572,026

508,271

 - 

 - 

 - 

Bought back and cancelled  



 

 

 

 

during the year

(1,402,000)

 - 

(1,402,000)

 - 

 - 

 - 


 

 

 

 

 

 




 

 

 

 

Balance at end of the year

218,570,291

22,446,726

241,017,017

199,106,550

18,977,000

218,083,550


 

 

 

 

 

 




 

 

 

 





1.4.2008 to 



1.4.2007 to 


Sterling 

Euro 

31.3.2009 

Sterling 


31.3.2008 

 

Shares 

Shares 

Total

Shares 

Euro 

Total

 

£ 

€ 

£ 

£ 

€ 

£ 

Share Premium Account







Balance at start of the 







year

21,231,448

 - 

21,231,448

 - 

 - 

 - 

Issued during the 







year

28,143,633

1,935,464

29,675,824

132,358,200

18,975,102

146,490,260

Net effect of conversion




 

 

 

during the year

(1,296,991)

1,441,307

(11)

 - 

 - 

 - 

Share issue expenses 







written off

(412,672)

 - 

(412,672)

(2,081,644)

(329,286)

(2,326,886)

Bought back and cancelled 

 

 

 

 

 

during the year

(1,323,748)

 - 

(1,323,748)

 - 

 - 

 - 

Transferred to other 







distributable reserves

 - 

 - 

 - 

(109,045,108)

(18,645,816)

(122,931,926)

 

 

 

 

 

 

 

 







Balance at end of the 







year

46,341,670

3,376,771

49,170,841

21,231,448

 - 

21,231,448


 

 

 

 

 

 









On 25th May 2006, 38.0 million Sterling C Shares were issued at 100.0p per Share. This issue took place in response to demand from existing and new shareholders and took the market capitalisation of the Company to over £100 million. On 30th June 2006, the 38.0 million Sterling C Shares were converted into 34,371,000 Sterling Redeemable Participating Preference Shares.


The Company successfully petitioned the Royal Court of Guernsey on 17th November 2006 and 14th March 2008 to seek its approval and confirmation of the Share Premium Account arising on the issue of C Shares and its transfer to Other Distributable Reserve.


On 31st January 2008 the Company issued 110.8 million Sterling C Shares at a price of 100.0p per Share and 18.9 million Euro C Shares at a price of 100.0¢ per ShareO14th March 2008 the Sterling and Euro C Shares were converted respectively into 82,758,201 and 18,977,000 new Redeemable Participating Preference Shares. 


On 28th March 2008 the Company issued a further 16,082,779 new Sterling Redeemable Participating Preference Shares at a price of 134.0p per Share.


On 27th June 2008 the Company issued 1,897,700 Euro Redeemable Participating Preference Shares at a price of 102.0¢ per Share. These Shares were listed on the London Stock Exchange on 2nd July 2008. 


On 1st October 2008 the Company issued 28.1 million Sterling C Shares at a price of 100.0p per Share. These Sterling C Shares were subsequently converted into 21,929,496 new Sterling Redeemable Participating Preference Shares on 28th October 2008. These Shares were listed on the London Stock Exchange on 3rd November 2008


Effective 24th September 2008 and in accordance with the Companies (Guernsey) Law 2008, the nominal amount paid in respect of each Share Class in issue as at that date was cancelled and the balance transferred to Other Distributable Reserve. The issued Shares thereafter became Shares of no par value. The Founder Shares were also cancelled. 


The Company operates a Share Conversion Scheme which allows Shareholders of any one class of Shares to convert all or part of their holdings into any other class of Share. On 1st July 2008, at the request of existing shareholders, the Company converted 593,317 Sterling Redeemable Participating Preference Shares to 1,008,208 Euro Redeemable Participating Preference Shares and 488,000 Euro Redeemable Participating Preference Shares to 287,181 Sterling Redeemable Participating Preference Shares. These Shares were converted using the 30th June 2008 Net Asset Value of each Share class and were listed on the London Stock Exchange on 1st August 2008. 


On 1st January 2009, at the request of existing shareholders, the Company converted 745,703 Sterling Redeemable Participating Preference Shares into 1,031,367 Euro Redeemable Participating Preference Shares. These Shares were converted using the 31st December 2008 Euro Shares Net Asset Value per Share and were listed on the London Stock Exchange on 5th February 2009.


During the year under the Share Buyback Programme the Company purchased and cancelled its owned Shares as follows:









Price per 


Percentage of 

Date






Shares


Share


Issued Share 









£


Capital 

23rd February 2009






10,000


0.96


0.00%

17th March 2009






60,000


0.96


0.02%

18th March 2009






280,000


0.96


0.12%

19th March 2009






900,000


0.94


0.37%

25th March 2009






152,000


0.91


0.06%







 




 


















1,402,000




0.57%







 




 













16.    NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING PREFERENCE SHARES


 





Sterling 

 

Euro 

 

31.3.2009 

 





Shares 

 

Shares

 

Total 

 





£ 

 

 

£ 

 


 

 

 

 

 

 

 

 

Total assets less liabilities


 

 

 

256,746,554

 

19,669,048

 

274,965,807

Less: amount attributable to Founder Shares


 

 

 

 

 

 


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

Amount attributable to Redeemable 


 

 

 

 

 

 

 

 

Participating Preference Shares


 

 

 

256,746,554

 

19,669,048

 

274,965,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares outstanding

 

 

218,570,291

 

22,446,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets attributable to holders of Redeemable 

 

 

 

 

 

Participating Preference Shares (per Share)

117.5p

 

87.6¢

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 





Sterling 

 

Euro 

 

31.3.2008

 





Shares 

 

Shares

 

Total

 





£ 

 

 

£ 

 


 

 

 

 

 

 

 

 

Total assets less liabilities


 

 

 

260,828,904

 

18,525,927

 

275,598,846

Less: amount attributable to Founder Shares


 

 

 

(2)

 

 

(2)

 


 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

Amount attributable to Redeemable 


 

 

 

 

 

 

 

 

Participating Preference Shares


 

 

 

260,828,902

 

18,525,927

 

275,598,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares outstanding

 

 

199,106,550

 

18,977,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets attributable to holders of Redeemable 

 

 

 

 

 

Participating Preference Shares (per Share)

131.0p

 

97.6¢

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


17.    CONTINGENT LIABILITIES

There were no contingent liabilities as at the balance sheet date.


18.    RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.


The Directors are responsible for the determination of the investment policy of the Company and have overall responsibility for the Company's activities. The Company's investment portfolio is managed by Fauchier Partners Management Limited which is the parent company of the Fauchier Partners Group.  


The Company and the Manager have entered into a Management Agreement dated 24th January 2005 under which the Manager has been given responsibility for the day-to-day discretionary management of the Company's assets (including uninvested cash) in accordance with the Company's investment objectives and policies, subject to the overall supervision of the Directors and in accordance with the investment restrictions in the Management Agreement and the Articles of Association. The Management Agreement may be terminated by the Company or the Manager giving to the other not less than 12 month's written noticeDetails of the management and performance fees to which the Manager is entitled are in Notes 6 and 7.


The Company has five non-executive directors, all independent of the Manager.


Each Director was paid a fee of £21,000 (31st March 2008: £21,000) per annum, except for the Chairman who was paid £29,000 (31st March 2008: £29,000) and the Audit Committee Chairman £23,000 (31st March 2008: £23,000). At a board meeting held on 10th March 2009, the board agreed that from 1st April 2009 each Director be paid a fee of £22,000 per annum, the Chairman be paid a fee of £32,000 per annum and the Audit Committee Chairman be paid a fee of £27,000 per annum.


Total Directors' fees for the year, including outstanding Directors' fees at the end of the year, are set out below.


 

 

 

 

 

 


31.3.2009 

 

31.3.2008

 

 

 

 

 

 


 

 

 

Directors' fees for the year

 

 

 

 

 


115,000

 

115,000

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 


 

 

 

Payable at end of year

 

 

 

 

 


28,750

 

28,750

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 


 

 

 


As at 31sMarch 2009 the Company held investments in a related fund valued at £11,515,341 (31st March 2008£11,108,468)Refer to the Portfolio Statement for details. 


As at  31st March 2009 and 31st March 2008, Directors of the Company held the following numbers of shares beneficially:


Directors

 

 

 

 

 


Shares

 

Shares

 

 

 

 

 

 


31.3.2009 

 

31.3.2008

 

 

 

 

 

 


 

 

 

Andrew Sykes 

 

 

 

 

 


152,790

 

152,790

Nicholas Fry

 

 

 

 

 


160,675

 

160,675

Robert King

 

 

 

 

 


38,150

 

18,670

Nicholas Moss

 

 

 

 

 


Nil

 

Nil

Robin Rumboll

 

 

 

 

 


25,000

 

25,000


Subsequent to the year end and up to the date of these Financial Statements the following Directors bought additional shares in the Company as follows:

 

 

 

 

 

 


 

 

Shares

 

 

 

 

 

 


 

 

 

Nicholas Fry

 

 

 

 

 


 

 

29,325

Robin Rumboll

 

 

 

 

 


 

 

150,000


19.    SEGMENT REPORTING

The Directors have considered the provisions of IAS 14 in relation to segmental reporting and concluded that the Company's activities form a single segment under the standard. From a geographical perspective, the Company's investments are managed on a global basis. Equally, in relation to business segmentation, the Company's investments are predominantly in a diversified portfolio of hedge funds.  


20.    SUBSEQUENT EVENTS

On 2nd April 2009, at the request of existing shareholders, the Company converted 3,641,584 Euro Redeemable Participating Preference Shares into 2,516,352 Sterling Redeemable Participating Preference Shares. These Shares were converted using the 31st March 2009 Sterling Redeemable Participating Preference Shares Net Asset Value per Share and were listed on the London Stock Exchange on 11th May 2009.


The Company has made the following share buybacks subsequent to the year end and up to date of this report:










Price per 


Percentage of 

Date







Shares


Share


Issued Share 










£


Capital 

3rd April 2009







100,000


0.90


0.04%

15th May 2009







260,000


1.06


0.11%

18th May 2009







100,000


1.06


0.04%

19th May 2009







200,000


1.07


0.08%

20th May 2009







1,250,000


1.06


0.52%

26th May 2009







500,000


1.02


0.21%

10th June 2009







150,000


1.08


0.06%

15th June 2009







110,000


1.05


0.05%

16th June 2009







30,000


1.06


0.01%

17th June 2009







200,000


1.04


0.08%

18th June 2009







105,756


1.04


0.04%

19th June 2009







104,425


1.05


0.04%

22nd June 2009







135,000


1.04


0.06%

23rd June 2009







200,000


1.04


0.08%

25th June 2009







149,251


1.05


0.06%

7th July 2009







28,000


1.07


0.01%








 




 




















3,622,432




1.49%








 




 














All shares bought back by the Company were cancelled.



21.
    FINANCIAL INSTRUMENTS

In accordance with its investment objectives and policies, the Company holds financial instruments which at any one time may comprise the following:

  • securities held in accordance with the investment objectives and policies;

  • cash and short-term receivables and payables arising directly from operations;

  • derivative instruments including forward foreign currency contracts; and

  • borrowings used to finance investment activity up to a maximum of the lower of 20.0 per cent. of the Net Asset Value of the Company or £40.0 million.


The financial instruments held by the Company are comprised principally of hedge fund investments.


Details of the Company's significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of its financial assets and liabilities are disclosed in Note 1. The following table analyses the carrying amounts of the financial assets and liabilities by category as defined in IAS 39.


Categories of financial instruments:

 

 

 

 

 

 



31.3.2009 

 

31.3.2008 

 

 

 

 

 

 



Fair Value 

 

Fair Value 

 

 

 

 

 

 



£ 

 

£ 

Financial assets designated at fair value through profit or loss



 

 

 

Listed equity securities

 

 

 

 

 



46,186,674

 

39,860,857

Unlisted equity securities

 

 

 

 

 



221,537,312

 

204,484,730

Unrealised gains on open forward foreign currency contracts



703,399 

 

890,702

 

 

 

 

 

 



 

 

 

Total financial assets designated at fair value 

 



 

 

 

through profit or loss

 

 

 

 

 



268,427,385

 

245,236,289

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

Receivables

 

 

 

 

 



14,739,010

 

35,514,590

 

 

 

 

 

 



.

 

 

 

 

 

 

 

 



 

 

 


Receivables include Cash and cash equivalents and other receivables


 

 

 

 

 

 



31.3.2009 

 

31.3.2008 

 

 

 

 

 

 



Fair Value 

 

Fair Value 

 

 

 

 

 

 



£ 

 

£ 

Financial liabilities designated at fair value through profit or loss



 

 

 

Unrealised losses on open forward foreign currency contracts



(6,504,444)

 

(141,668)

Other payables

 

 

 

 

 



(1,696,144)

 

(5,010,365)

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



(8,200,588)

 

(5,152,033)

 

 

 

 

 

 



 

 

 


22    FINANCIAL RISK MANAGEMENT AND ASSOCIATED RISKS

The Company is exposed to a variety of financial risks as a result of its activities. These risks include market risk (including price risk, interest rate risk and foreign currency risk), credit risk and liquidity riskThese risks, which have been applied throughout the year and the Manager's policies for managing them are summarised below. 


Market risk 

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company's activities expose it primarily to the market risks of changes in market prices, interest rates and foreign currency exchange rates.


Market price risk 

Market price risk arises mainly from the uncertainty about future prices of the financial instruments held by the underlying hedge funds. It represents the potential loss the Company may suffer through holding market positions in the face of price movements.


Market risk encompasses the potential for both gains and losses and is affected by three main components: changes in actual market prices, interest rate and foreign currency movements. Interest rate and foreign currency movement risks are covered elsewhere in this note. The overall market risk management strategy of each of the holdings of the Company is primarily driven by their respective investment objectives as previously detailed.


The Manager considers the asset allocation of each underlying holding of the Company in order to minimize the risk associated with particular countries or industry sectors while continuing to follow their respective investment objective. It achieves this primarily through the diversification of investments across different hedge fund strategies 


Market price risk 

The Investment Manager does not use derivative instruments to hedge the investment portfolios against market risk, as in their opinion the cost of such a process would result in an unacceptable reduction in the potential for capital growth. 


The maximum risk resulting from financial instruments is determined by their fair valueThe overall market exposure as at 31sMarch 2009 is shown in the Balance Sheet.


The Investment Manager believes that analysis of value-at-risk (VaR) to be an inappropriate measure of market risk in a fund of hedge funds. Instead, the Investment Manager monitors market risk of the Company's investments via traditional statistical measures, such as correlation and beta. This is done on a monthly basis.


Beta is an estimate of the Company's response to swings in the market. A beta of 1 indicates that the Company will be as volatile as the market.


The Company's beta to the MSCI World Equity Index (USD) and Citigroup WGBI 5+ year (LCL) as at 31st March 2009 and 31st March 2008 was as follows:


Beta to MSCI World Equity Index (USD)



31.3.2009

31.3.2008

Absolute Return Trust Limited

0.23

0.21


If the MSCI World Equity Index (USD) as at 31st March 2009 had increased by 10% (31st March 2008: 10%) with all other variables held constant, the estimated increase in Net Assets attributable to holders of Redeemable Participating Preference Shares would have been US$ 9,064,812 (31st March 2008: US$ 10,667,693).


Conversely, if the MSCI World Equity Index (USD) as at 31st March 2009 had decreased by 10% (31st March 2008: 10%) with all other variables held constant, the estimated decrease in Net Assets attributable to holders of Redeemable Participating Preference Shares would have been US$ 9,064,812 (31st March 2008: US$ 10,667,693).


The MSCI World Equity Index (USD) is used as a proxy for World Equity Markets as it is a free float-adjusted market capitalisation weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Equity Index (USD) consists of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.


Beta to Citigroup World Government Bond Index 5+ year (LCL)


Fund

31.3.2009

31.3.2008

Absolute Return Trust Limited

-0.25

-0.16


If the Citigroup World Government Bond Index 5+ year (LCL) at 31st March 2009 had increased by 10% (31st March 2008: 10%) with all other variables held constant, the estimated decrease in Net Assets attributable to holders of redeemable participating shares would have been US$ 9,853,056 (31st March 2008: US$ 8,127,766).


Conversely, if the Citigroup World Government Bond Index 5+ year (LCL) at 31st March 2009 had decreased by 10% (31st March 2008: 10%) with all other variables held constant, the estimated increase in Net Assets attributable to holders of Redeemable Participating Shares would have been US$ 9,853,056 (31st March 2008: US$ 8,127,766).


Foreign currency risk

Foreign currency risk arises from fluctuations in the value of a foreign currency. It represents the potential loss the Company may suffer through holding foreign currency assets in the face of foreign exchange movements. The Company's treatment of currency transactions is set out in Note 1 to the Financial Statements under 'Translation of foreign currency' and 'Forward foreign currency and currency option contracts'. 


The Company's Shares are denominated in Sterling (a small number are denominated in Eurosand its operating expenses are incurred in Sterling, while the Company's investments are denominated in US Dollars. The Company's presentation currency is Sterling; hence the Balance Sheet may be significantly affected by movements in the exchange rates between the US Dollar, Euro and Sterling. The Manager manages exposure to currency movements by using forward foreign currency and currency option contracts to hedge total exposure.


As at 31sMarch 2009, the Company had nine (31st March 2008fiveopen forward foreign currency contracts.

 

 





 

 

 

 

31.3.2009 

 

 





 

 

 

 

Total 

 

 



US$


£ 

 

€ 

 

£ 

Sterling forward currency 



 


 

 

 

 

 

contract

 



 


 

 

 

 

 

Position at 31st March 2009



 


261,124,768 

 

 - 

 

261,124,768 

Contracted position

 



374,336,688


254,658,650 

 

 - 

 

254,658,650 

 

 



 


 

 

 

 

 

Euro forward currency 

 



 


 

 

 

 

 

contract

 



 


 

 

 

 

 

Position at 31st March 2009



 


 - 

 

18,833,429

 

17,444,821

Contracted position

 



25,005,908


 - 

 

19,551,442

 

18,109,894

 

 



 


 

 

 

 

 

Unrealised (losses)/gains

 



 


(6,466,118)

 

718,013 

 

(5,801,045)

 

 



 


 

 

 

 

 

 

 





 

 

 

 

 

Settlement date

 





29th May 2009

 

29th May 2009

 

 


 

 





 

 

 

 

31.3.2008 

 

 





 

 

 

 

Total 

 

 



US$


£ 

 

€ 

 

£ 

Sterling forward currency 



 


 

 

.

 

 

contract

 



 


 

 

 

 

 

Position at 31st March 2008



 


271,221,371 

 

 - 

 

271,221,371 

Contracted position

 



536,629,438


271,211,788 

 

 - 

 

271,211,788 

 

 



 


 

 

 

 

 

Euro forward currency 

 



 


 

 

 

 

 

contract

 



 


 

 

 

 

 

Position at 31st March 2008



 


 - 

 

18,134,357

 

14,457,760

Contracted position

 



28,663,808


 - 

 

19,085,890

 

15,216,377

 

 



 


 

 

 

 

 

Unrealised (losses)/gains

 



 


(9,583)

 

951,533 

 

749,034 

 

 



 


 

 

 

 

 

 

 





 

 

 

 

 

Settlement date

 





30th May 2008

 

30th May 2008

 

 


As at 31st March 2009 and 31st March 2008, the Company had no open currency option contracts. 


As at 31sMarch 2009 and 31st March 2008, the Company held the following assets and liabilities denominated in US Dollars:


 

 

 

 

 


31.3.2009 

 

31.3.2008 


 

 

 

 

 


£ 

 

£ 

Assets

 

 

 

 

 


282,986,086

 

279,761,447

Liabilities

 

 

 

 

 


7,843,917

 

2,783,313


Foreign currency sensitivity analysis 

The below details the Company's sensitivity to a 10% (31st March 2008: 5%) change in the Sterling exchange rate against the US Dollars and Euro currencies. The sensitivity analysis percentages represent management's assessment, based on the foreign exchange rate movements over the relevant year, of the reasonably possible change in foreign exchange rates.










31.3.2009 


31.3.2008 









£ 


£ 

Impact on Income Statement in response to a 








- 10%/10% increase








(215,627)


722,360









 


 

- 10%/10% decrease








263,928


(882,955)









 


 












Impact on Equity in response 










- 10%/10% increase








(215,627)


722,360









 


 

- 10%/10% decrease








263,928


(882,955)









 


 



Interest rate risk 

Interest rate risk represents the uncertainty of investment return due to changes in the market rates of interest. Interest receivable on bank deposits or payable on bank overdraft will be affected by fluctuations in interest rates. All cash balances are at variable rates. Increases in interest rates will also increase the borrowing costs of the Company should the uncommitted credit facility be used.  


The Company is not exposed to significant interest rate risk as the majority of the Company's financial assets are investments in underlying hedge funds which are non-interest-bearing. Any excess cash and cash equivalents of the Company are invested at short-term market interest rates.


The Company's continuing position in relation to interest rate risk is monitored on a monthly basis by the Investment Manager as part of its review of the monthly Net Asset Value calculations prepared by the Company's Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited. 


Interest rate/risk profile of financial assets and liabilities:



Weighted







Greater 




Average 

Within 3






than 


31.3.2009 


Interest rate

Months


3-6 months


6-12 months


 12 months 


Total 



£ 


£ 


£ 


£ 


£ 

Assets











Non-Interest Bearing


26,377,500


186,527,685


9,092,592


48,353,583


270,351,360

Cash and 











Cash equivalent

2.03%

12,815,035


 - 


 - 


 - 


12,815,035



 


 


 


 


 














39,192,535


186,527,685


9,092,592


48,353,583


283,166,395



 


 


 


 


 























Liabilities











Non-Interest Bearing


8,200,588


 - 


 - 


 - 


8,200,588



 


 


 


 


 














8,200,588


 - 


 - 


 - 


8,200,588



 


 


 


 


 














Weighted

 

 

 

 

 

 

Greater 

 

 


Average 

Within 3

 

 

 

 

 

than 

 

31.3.2008 


Interest rate

Months

 

3-6 months

 

6-12 months

 

 12 months 

 

Total 



£ 

 

£ 

 

£ 

 

£ 

 

£ 

Assets











Non-Interest Bearing


50,792,723


179,857,186


4,546,823


32,756,951


267,953,683

Cash and 











Cash equivalent

3.23%

12,797,196


 - 


 - 


 - 


12,797,196



 


 


 


 


 














63,589,919


179,857,186


4,546,823


32,756,951


280,750,879



 


 


 


 


 












Liabilities











Non-Interest Bearing


5,152,033


 - 


 - 


 - 


5,152,033



 


 


 


 


 














5,152,033


 - 


 - 


 - 


5,152,033



 


 


 


 


 













Interest rate sensitivity

Cash and cash equivalents will be affected by movements in interest rates. However, no material impact on the Income Statement or Balance Sheet is expected due to the immateriality of interest rates at the year end.


Liquidity risk

Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments in a reasonable timeframe or at reasonable price. 


The Company is exposed to the possibility of cash redemptions of Redeemable Participating Preference Shares, subject to the discretion of the Directors, as described in Note 23. It invests the majority of its assets in collective hedge funds with their own liquidity conditions.


The liquidity risk of the Company, which mainly consists of a possible mismatch of liquidity between the conditions offered at the Company level and those proposed by each collective investment fund at the underlying fund level, is carefully monitored by the Investment Manager on a monthly basis.   


To minimise liquidity risk the Company has a credit facility in place from its bankers to manage the mark to market exposures and short-term cash flows arising from its currency hedging programme and for other short-term cash flow management purposes. The Company may borrow the lower of 20.0 per cent. of the Net Asset Value of the Company or £40.0 million to meet any liquidity risk that may arise. (See Note 11).


The following table details the Company's liquidity analysis for its financial assets and liabilities. The table has been drawn up based on the undiscounted net cash flows on the financial assets and liabilities that settle on a net basis and the undiscounted gross cash flows on those financial assets and liabilities that require gross settlement.











Greater 






Within 3






than 


31.3.2009 




Months


3-6 months


6-12 months


 12 months 


Total 




£ 


£ 


£ 


£ 


£ 

Financial assets at fair value 










through profit or loss* 

23,750,126

 

186,527,685


9,092,592


48,353,583


267,723,986

Management fee payable

(233,364)


 


 - 


 - 


(233,364)

Sale of investments received










in advance



(1,339,473)


 - 


 - 


 - 


(1,339,473)

Other creditors



(123,307)


 - 


 - 


 - 


(123,307)




 

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

 

Total



22,053,982

 

186,527,685

 

9,092,592

 

48,353,583

 

266,027,842




 

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

 


*The table reflects the anticipated cash flow assuming notice was given to all underlying funds as at 31st March 2009. It includes a provision for the approximate 10.0 per cent.'audit hold back' which  the underlying  funds may apply to full redemptions and any other known restrictions the managers of the underlying funds may place on redemptions. Where there is currently no firm indication from the underlying manager on the expected timing of the receipt of redemption proceeds, the relevant amount is included in the 'greater than 12 months' category. The cash flow projections are therefore conservative, but remain estimates. Restrictions are in the course of being lifted and the information contained in the table above is not an indication of the Company's future liquidity.


 

 

 







Greater 



 

 

 

Within 3






than 


31.3.2008 

 

 

 

Months


3-6 months


6-12 months


 12 months 


Total 

 

 

 

£ 

 

£ 

 

£ 

 

£ 

 

£ 

Financial assets at fair value 

 

 

 

 

 

 

 

 

 

through profit or loss

 

27,184,627

 

179,857,186

 

4,546,823

 

32,756,951

 

244,345,587

Performance fee payable

 

(1,493,259)

 

 - 

 

 - 

 

 - 

 

(1,493,259)

Management fee payable

(540,998)

 

 - 

 

 - 

 

 - 

 

(540,998)

Purchase of investments 

 

 

 

 

 

 

 

 

 

awaiting settlement

 

 

(2,783,313)

 

 - 

 

 - 

 

 - 

 

(2,783,313)

Other creditors

 

 

(192,795)

 

 - 

 

 - 

 

 - 

 

(192,795)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

22,174,262

 

179,857,186

 

4,546,823

 

32,756,951

 

239,335,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. Failure of any relevant counterparty to perform its obligations in respect of these items may lead to a financial loss.


The Company is exposed to material credit risk in respect of cash and cash equivalents and debtors.  Credit risk is mitigated by the Company's policy to transact only with leading commercial and investment banks. Currently all cash is placed with Northern Trust (Guernsey) Limited ('NTGL'). NTGL is a wholly owned subsidiary of The Northern Trust Corporation ('TNTC'). TNTC is publicly traded and a constituent of the S&P 500. TNTC has a credit rating of AA from Standard & Poor's and Aa3 from Moody's. The credit risk associated with debtors is limited to the unrealised gains on open forward foreign currency contracts, as detailed above and other receivables. It is the opinion of the Board of Directors that the carrying amounts of these financial assets represent the maximum credit risk exposure as at the balance sheet date.


Credit risk analysis 

The Company's maximum credit exposure is limited to the carrying amount of financial assets recognised as at the balance sheet date, as summarised below:


 

 

 

 

 

 

 

 

31.3.2009 

 

31.3.2008

 

 

 

 

 

 

 

 

£

 

£

Cash and cash equivalents

 

 

 

 

 

 

12,815,035

 

12,797,196

Net unrealised gains on open forward foreign currency contracts

 

703,399

 

890,702

Other receivables

 

 

 

 

 

 

 

1,923,975

 

22,717,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,442,409

 

36,405,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


23. CAPITAL RISK MANAGEMENT

The fair value of the Company's financial assets and liabilities approximates their carrying amounts as at the balance sheet date.  


The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.  There are no externally-imposed capital requirements on the Company.  


The Company has the ability to borrow the lower of 20.0 per cent. of its Net Asset Value or £40.0 million for short-term or temporary purposes as is necessary for the settlement of transactions, to facilitate redemption (where applicable) or to meet ongoing expenses. The Directors have put in place a credit facility for this purpose. The Company does not have any structural gearing. The Company is indirectly exposed to gearing to the extent that investee funds are themselves geared. Cash (if any) will be held in G8 currency-denominated accounts. The gearing ratio below is calculated as total liabilities divided by total equity










31.3.2009 


31.3.2008 









£ 


£ 

Total assets








283,166,395


280,750,879

Less: total liabilities








(8,200,588)


(5,152,033)









 


 












Total equity








274,965,807


275,598,846









 


 












Gearing ratio








2.98%


1.87%

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 


The Board considers this gearing ratio to be adequate since total liabilities above refer only to other payables.    

The Company may purchase its own Shares in any class in issue in the market with a view to addressing any imbalance between the market supply of and demand for Shares and to assist in maintaining a narrow discount to Net Asset Value at which the Shares may be trading. Any such purchases would only be made at prices which represent a discount to the prevailing Net Asset Value per Share at that date so as to enhance the Net Asset Value per Share for the remaining Shareholders.


The Company may purchase up to a maximum 14.99 per cent. of its own Shares following the admission of the Shares to trading on the London Stock Exchange's market for listed securities. Further to such authority, the minimum price (exclusive of expenses) which may be paid for a Share is 0.01p and the maximum price (exclusive of expenses) which may be paid for a Share is an amount equal to 105.0 per cent. of the average of the market values for a Share taken from the Daily Official List of the London Stock Exchange for the five business days immediately preceding the day on which the Share is purchased (or such other amount as may be specified by the UK Listing Authority from time to time). 


Shareholders may liquidate their investments in the Company half-yearly, on 31st March and/or 30th September of each year (the 'Redemption Day'), subject to certain limitations and the Directors exercising their discretion to operate the redemption facility. Shareholders may request the redemption of part of their holdings of Shares for cash at the prevailing Net Assets Value by giving notice to the Company not less than 65 days prior to the Redemption Date. The Directors will meet regularly to consider the operation of the redemption facility in light of prevailing market conditions, Shareholders sentiments and any legal constraints. 


Redemption on any Redemption Day will be restricted to up to 25.0 per cent. of the Shares in issue (or such lesser amount as the Directors, in their discretion, may determine), with any excess redemption requests being scaled back pro rata. Shareholders should note that the operation of this Redemption Facility is at the sole discretion of the Directors and they should place no reliance on the Directors exercising such discretion. Accordingly, Shareholders should have no expectations that the Directors will exercise their discretion on these Redemption Days. 


This information is provided by RNS
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END
 
 
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Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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