RNS Number : 7248I
Bramdean Alternatives Limited
24 November 2008
RNS Announcement
Monday 24th November 2008
BRAMDEAN ALTERNATIVES LIMITED
Unaudited Interim Report and Condensed Half-Yearly Financial Statements
For the period from 1 April 2008 to 30 September 2008
Highlights
* The Company's net asset value per Sterling Share and U.S. Dollar Share ("NAV") has been revised to 97.26
pence and US$ 0.9109 as at 30 September 2008.
* Revised September 2008 NAV results from fair market value write-downs received from the managers of some
of the Company's Private Equity and Specialty Funds since mid-October 2008.
* Performance discrepancy between the two Share classes is caused by currency movements.
* The Company's hedging policy has been NAV enhancing as at 30 September 2008.
* The Company had no debt at 30 September 2008.
* The Company's commitments to Private Equity and Specialty Funds amounted to US$222 million or 97% of NAV
on a fully-drawn basis. The Company was 32.3% drawn and it held approximately 15% of its NAV in cash and
other assets as at 30 September 2008.
* The Company intends to maintain cash reserves in the short-term to fund the Company's draw-downs from its
Private Equity and Specialty Funds and to protect the net asset value.
* The closing mid-market price of the Company's Sterling and U.S. Dollar Shares were 79.50 pence and US$0.98
on 30 September 2008, down by 1.2% and 3.9% respectively in the six months to 30 September 2008.
* Share price performance compares with falls of 7.9% in the HFRI Fund of Funds Composite Index; 8% in the
Credit Suisse/Tremont Hedge Fund Index; 15.2% in the FTSE All-Share Index and 17.7% in the MSCI World
Index over the equivalent period.
* NAV per Sterling Share up 0.1% year-on-year and down 1.3% in the six months to 30 September 2008.
* NAV per U.S. Dollar Share down 6.5% year-on-year and down 6.9% in the six months to 30 September 2008.
* In line with the Company's dividend policy, the Board has not declared an interim dividend.
* The Company had invested in 36 Private Equity, Specialty and Hedge Funds at 30 September 2008.
* The Company has substantially completed its investment programme for 2008.
Portfolio Summary
* The Portfolio held 11 Private Equity Funds and six Specialty Funds, six Transitional Funds and 13 Strategic Hedge
Funds as at 30 September 2008.
* The Company's Hedge Funds portfolio includes investments in Paulson Advantage Plus Ltd., Arcas MAC 79 Ltd.,
Rye Select Broad Market XL Portfolio Ltd., Kei Ltd and D.E. Shaw Oculus International Members Interest.
* Private Equity and Specialty Funds investments include investments in two secondaries Funds, Coller International
Partners V L.P. and Greenpark International Investors III L.P. and investments in three distressed debt
managers, MatlinPatterson Global Opportunities Partners III L.P., Oaktree OCM Opportunities Fund VII b L.P.
and HIG Bayside Debt & LBO Fund II L.P.
* The Company's invested assets were allocated as follows, approximately, as at 30 September 2008: 61% Hedge
Funds; 24% Private Equity & Specialty Funds and 15% Cash.
* The Company's geographical allocation as at 30 September 2008 was 51.1% North America; 24.7% Europe;
18.7% Global and 5.5% Asia & other.
Brian Larcombe, Chairman: "The Company has performed well in what has been a tumultuous year in global financial markets. It is
inevitable that the next 12 months will continue to be challenging, as evidenced by the significant worsening in global financial markets
during October and in the outlook for global economies. Since the estimated NAV for September 2008 was published in mid-October 2008, the
Company has received confirmed or estimated write-downs from a number of our underlying managers of Private Equity and Specialty Funds. It
is likely that we will see some further write-downs in the Private Equity and Specialty Funds portfolios in the second six months of the
Company's financial year to 31 March 2009."
Nicola Horlick, Chief Executive Officer of Bramdean Asset Management LLP, Investment Manager for Bramdean Alternatives Limited
commented: "We have been repositioning the Company's Portfolio since the beginning of the year in response to the global financial crisis.
We intend to maintain cash reserves in the short term to fund the Company's draw-downs from its Private Equity and Specialty Funds and to
protect the net asset value. Despite the defensive position that we have implemented, the Company's Portfolio has not been immune to the
widespread impact of the global financial downturn. We will continue to monitor Funds that have struggled in the financial markets' downturn
and will, if necessary, redeem from those Funds we feel may continue to find it difficult to deliver returns in the challenging market
conditions.
"We have adopted a cautionary stance in the Company's Private Equity and Specialty Funds portfolios since inception. We chose managers
which invested on a relatively limited basis in the 2007 vintage, when valuations were at their highest, and we invested reasonably heavily
into distressed debt managers, which should benefit from the current depressed economic environment. We have tilted the Company's
investments in 2008 vintage funds towards distressed and uncorrelated investments, as we believe these investments will perform well in the
current environment."
BRAMDEAN ALTERNATIVES LIMITED
Interim Report and
Condensed Half-Yearly Financial Statements
For the period from 1 April 2008
to 30 September 2008
Table of Contents Page
Chairman's Statement 5
Investment Manager's Review 6
Management and Administration 27
Summary Information 29
Independent Review Report 32
Condensed Half-Yearly Balance Sheet 33
Condensed Half-Yearly Income Statement 34
Condensed Half-Yearly Statement of Changes in Equity 35
Condensed Half-Yearly Statement of Cash Flows 36
Notes to the Condensed Half-Yearly Financial Statements 37
Schedule of Investments 50
Chairman's Statement
The Company has performed well in what has been a tumultuous year in global financial markets. As I write this report, it seems that the
global economy is in a recession. It is inevitable that the next 12 months will continue to be challenging, as evidenced by the significant
worsening in global financial markets during October and in the outlook for global economies.
Up until 30 September 2008, the Company's net asset value had shown resilience in the face of these exceptionally difficult conditions.
Since the estimated NAV for September 2008 was published in mid-October 2008, the Company has received confirmed or estimated write-downs
from a number of our underlying managers of Private Equity and Specialty Funds amounting to US$8.2 million or 3.4% of total net asset value.
The Directors have, therefore, decided to update that NAV.
The September 2008 NAV has been revised to 97.26 pence per Sterling Share and US$0.9109 per U.S. Dollar Share, a decrease of 3.4% from
the previously estimated NAV of 100.72 pence per Sterling Share and US$0.9432 per U.S. Dollar Share.
It is likely that we will see some further write-downs in the Private Equity and Specialty Funds portfolios in the second six months of
the Company's financial year to 31 March 2009.
The Company's share price has been adversely affected during the reported period by various factors, including the falls in global
equity markets, the relative illiquidity of the Company's Shares and the de-rating of the Investment Companies' sector which has seen the
Company and its peers trade at wide discounts to net asset value.
In the reported period, the Company's Sterling Share price has declined by 1.2% to 79.50 pence and the U.S. Dollar Share price has
declined by 3.9% to US$0.98. This performance compares with falls of 7.9% fall in the HFRI Fund of Funds Composite Index; 8.0% in the Credit
Suisse/Tremont Hedge Fund Index; a 15.2% in the FTSE All-Share Index and 17.7% in the MSCI World Index over the same period.
Your Board of Directors is not complacent about the share price, which has seen a continued decline since 30 September 2008. The
Company's policy to manage the share price discount to net asset value is reviewed at each quarterly Board meeting. The Company has acquired
a modest number of Sterling Shares during the reported period, but it has been the view of the Directors that financial markets' volatility
has not been an appropriate backdrop for a share buy-back programme. We have, therefore, been cautious about the timing of any buy-back
activity to ensure that any action we take has a reasonable chance of narrowing the discount of the share price to net asset value.
The Company had no debt at 30 September 2008. In line with the Company's dividend policy, the Board has not recommended payment of an
interim dividend.
Brian Larcombe
Chairman
21 November 2008 Investment Managers' Review
The Company has been repositioning its Portfolio since the beginning of the year in response to the global financial crisis. We intend
to maintain cash resources in the short term to fund the Company's draw-downs from its Private Equity and Specialty Funds and to protect the
net asset value.
Net Asset Value summary
The progress in the Company's net asset value in the first six months of the financial year had been pleasing given the unprecedented
turmoil in financial markets. The Company's policy of investing across different asset classes has provided diversification across vintage
investment years, strategies, styles, geography and industries and this had been helpful in supporting the net asset value in the period up
to 30 September 2008.
Since the Company published its estimated NAV for September 2008, the Company has received notice of four confirmed and five estimated
fair market value write-downs from its underlying Private Equity and Specialty Funds for the third quarter 2008.
Any downward valuations received from any of the Company's Hedge Funds are routinely incorporated into the next available NAV and, as
such, have already been incorporated into the previously estimated September NAV. The revised September 2008 NAV does not include any
declines in value from the Company's Hedge Fund holdings.
The most severe write-downs that the Company has received relate to SVG Strategic Recovery Fund II L.P. and to Terra Firma Capital
Partners III L.P. These Funds represent 1.4% and 1.9% of the Company's revised total net asset value as at 30 September 2008. These
valuations are detailed more fully on page 51 of this Report.
As a result of the downward revision to the September 2008 NAV, the Company's NAV per Sterling Share, which had nonetheless increased by
0.1% since 30 September 2007, has fallen by 1.3% since 31 March 2008. The NAV per U.S. Dollar Share has declined by 6.5% and by 6.9% in
those respective periods.
The difference in performance between the two Share classes is caused by currency movements, which is described more fully in the
hedging activity summary below.
Investment portfolio
At 30 September 2008, approximately 85% of the Company's net assets were invested in a range of Hedge Funds, Private Equity and
Specialty Funds while the remaining 15% of the Portfolio was held in cash and other assets.
The Company held 36 underlying investments at 30 September 2008.
Investments had been made in 11 Private Equity Funds and six Specialty Funds as at 30 September 2008.The Company has made one further
commitment after the end of the reported period and this is likely to complete the Company's Private Equity and Specialty Funds investment
programme for 2008.
This commitment, made on 31 October 2008, is a US$5.45 million investment in Resonant Music I LP., an innovative music-for-film
investment fund, which will provide finance for the music of independently produced feature films and TV series. The Fund aims to create a
valuable music publishing catalogue, which is intended to generate a high quality, long-term royalty revenue stream as well as the potential
for capital appreciation in the value of the catalogue.
As at 30 September 2008, the total amount that had been drawn-down on the Company's commitments of US$222 million was US$71.9 million
and the total amount of distributions was US$2.1 million. It is the Company's policy to reinvest the distributions.
In addition to the 17 Private Equity and Specialty Funds investments, the Company held six Funds in its Transitional portfolio and 13
Funds in its Strategic Hedge Funds portfolio as at 30 September 2008.
In regard to the Transitional portfolio, the Company redeemed from Enso Global Equities Fund Ltd. on 30 September 2008 and from Oak Hill
Credit Alpha Fund Offshore Ltd., York Asian Opportunities Unit Trust and York European Opportunities Unit Trust on 1 October 2008. The
Investment Manager has made one new investment into Kaiser Trading Fund for the Transitional portfolio and this took effect on 1 October
2008. As at 1 October 2008, therefore, there are now four Funds in the Transitional portfolio.
Currency movements and hedging activity
During the reported period, the U.S. Dollar has appreciated by 10.3% to US$/�1.78. This has been advantageous to the Company's U.S.
Dollar-based assets, which make up the majority of the Company's investments, but disadvantageous to the Company's Euro and
Sterling-denominated assets. It is the Company's policy to hedge the exposure of the Sterling and U.S. Dollar Share classes to currency
movements and this policy has been implemented during the reported period.
The Company continued to implement a monthly rolling currency forward contract with Bank of Scotland up until the end of July 2008 after
which time the Investment Manager appointed Mesirow Financial Currency Management ("Mesirow") to manage the Company's currency hedging.
Mesirow is a currency specialist based in Chicago with US$11 billion assets under management.
During the reported period, the Company hedged 70% of its U.S. Dollar and Euro exposure in the Sterling Share class and 70% of its Euro
and Sterling exposure in the U.S. Dollar Share class.
Since the end of the reported period, the Investment Manager has reduced its hedging ratio to 35% of its U.S. Dollar and Euro exposure
in the Sterling Share class and maintained its hedge ratio at 70% of its Euro and Sterling exposure in the U.S. Dollar Share class. This
action was taken in response to the continuing appreciation of the U.S. Dollar after the end of the reported period.
Private Equity Funds portfolio review
There were 11 Private Equity Funds in the Company's Portfolio as at 30 September 2008. Five of the Company's Private Equity Funds are
2006 vintage; four Funds are 2007 vintage and two Funds are 2008 vintage. Of the 11 Funds, two are secondaries Funds.
The Company has a commitment to Lehman Brothers Venture Partners V L.P. and this Fund is largely unaffected by the bankruptcy of Lehman
Brothers Holdings Inc. as it is a separate legal entity.
The Funds in the Company's Portfolio are at an early stage in their investment cycle, with the exception of the two 2006 vintage
secondaries Funds, Coller International Partners V L.P. and Greenpark International Investors III L.P., whose role is to provide vintage
year diversification to the Company's Private Equity portfolio, since their strategy is to acquire primarily pre-2006 funds across a range
of vintages. They are also expected to provide distributions to fund future draw-downs from the Private Equity and Specialty Funds.
Since the Company's inception in July 2007, the asset valuations of the Private Equity Funds have fallen by -8.6% at 30 September 2008.
The asset valuations are calculated on the basis of invested capital, including management fees and costs, compared to the most recent
valuations provided to the Company by the managers of the underlying Funds. The asset valuations will be sensitive to changes in the
economic cycle, so earlier this year, for example, when the Company was receiving upwards valuations from its managers and also
distributions from its secondaries Funds, the Private Equity Funds portfolio was reporting positive monthly asset valuations. We anticipate
that the asset valuations will be negative over the coming months because the downturn in the global economy is likely to cause further
write-downs as well as a slow-down in distributions as realisations become more difficult to complete.
To date, Coller has made three distributions and Greenpark has made six, and these account for all the distributions to the Company from
the Private Equity and Specialty Funds.
The 2006 vintage Private Equity Funds, together with Silver Lake Partners III L.P., a 2007 vintage Fund, are all large-cap Funds which
made substantial investments prior to the commencement of the credit crisis in July-August 2007. They benefited from the favourable lending
environment for private equity funds during that period and secured attractive financing packages. These managers are positive about the
deals they completed in 2006 and early 2007, as they believe those deals were generally acquired on better financing terms than the ones
immediately prior to and since the commencement of the credit crisis. The credit crisis has deeply affected the ability of these managers to
obtain financing at attractive terms leading them to only invest in deals with light or no leverage.
The mid-cap private equity market had remained more robust despite the credit crisis, being less dependent on leverage to generate
returns than the large-cap sector. However, deal-flow is clearly slowing down across all sectors of the buy-out industry and we, therefore,
expect to see a slow-down in investment pace from our managers in this space: Goldman Sachs Capital Partners VI L.P., AIG Brazil Special
Situations Fund II L.P. and Thoma Bravo Fund IX L.P.
The Company has the ability to over-commit to Private Equity and Specialty Funds in order to manage its cash-flows efficiently and to
gain the maximum possible investment exposure to its investments. As at 30 September 2008, the Company had committed US$222 million to
Private Equity and Specialty Funds, representing approximately 97% of the revised September 2008 NAV on a fully-drawn basis. The asset
allocation target to these two asset classes combined is 70%. On this basis, the Company was over-committed relative to that target by 39%,
on a fully-drawn basis, as at the end of the reported period.
The Company's commitments may be financed by a combination of its investments in the Transitional portfolio, its cash holdings and its
ability to gear by up to 25% of its net asset value. To date the Company has not employed any credit facility as it does not believe that
current debt financing terms are attractive, although there is a risk that the Company might not be able to obtain a loan facility in the
current economic environment in any event. The Company may also alter the weightings in its Strategic Hedge Funds portfolio should
additional liquidity be required.
Specialty Funds portfolio review
The Company had invested in six Specialty Funds as at 30 September 2008. The role of these Funds is to provide a counterbalance to the
Private Equity portfolio, as some of the Funds in this portfolio make their best returns in more difficult economic environments as
distressed debt managers. One Fund is 2006 vintage; three Funds are 2007 vintage and two Funds are 2008 vintage.
As with the Private Equity Funds, most Funds in the Company's Specialty portfolio are at an early stage in their investment cycle. Since
the Company's inception in July 2007, the asset valuations of the Specialty Funds have fallen by -17.8% at 30 September 2008. The asset
valuations are calculated on the basis of invested capital, including management fees and costs, compared to the most recent valuations
provided to the Company by the managers of the underlying Funds. Many of the Specialty Funds were added to the Company's Portfolio
relatively recently or have only recently commenced their investment programmes. The earlier Specialty Funds' investments were marked down
in line with the market downturn.
Two new Funds have joined the Specialty portfolio during the reported period. The Company made a US$15 million commitment to HIG Bayside
Debt & LBO Fund II L.P., a U.S. distressed debt and growth equity investor, on 14 May 2008; a US$5 million commitment was made to LimeTree
Emerging Beachfront Land Investment Fund II L.P., on 13 August 2008. This Fund invests in beachfront land with development potential with a
focus on the Asia Pacific region, and in particular in Thailand and Cambodia. This Fund expects to hold its investments for between three
and seven years, with a view to selling the land on to groups such as hotel or condominium developers. The Fund does not develop the land
itself.
The Company considers SVG Strategic Recovery Fund II L.P. to be a specialty investment since it invests in publicly-listed small-cap
companies, rather than in private companies. This sector has been hit hard by the financial markets turmoil. The Company's other Specialty
investments include MatlinPatterson Global Opportunities Partners III L.P. and Oaktree OCM Opportunities Fund VII b L.P. Their role in the
Company's portfolio is to provide a counterbalance to the Private Equity portfolio, since they make their best returns in more challenging
economic environments by investing in distressed opportunities and so are expected to benefit from the current credit crisis. Pine Brook
Capital Partners L.P., the final Fund in the Specialty portfolio, focuses on the energy and financial services sectors.
The Company will continue to look for opportunities where the risk/return proposition and diversification benefits for the portfolio
look favourable, but no further investments are expected in the short term.
Transitional portfolio review
There were six Funds in the Company's Transitional portfolio as at 30 September 2008. In the reported period, the Transitional portfolio
returned -4.73% gross, inclusive of cash.
This portfolio is designed to manage the cash that the Company commits to Private Equity Funds but has yet to be drawn-down. The
Transitional portfolio was set up with three aspirations: to reflect private equity-type characteristics and returns; to preserve capital
over the medium term and to be sufficiently liquid to enable the Company to meet its capital calls. Initially, to achieve these aims the
portfolio was largely invested in a series of specialist global equity managers, long/short equity and event-driven managers as these
classes demonstrate the most similar characteristics to private equity. The portfolio also aimed to reduce exposure to market risk through
market neutral and relative value funds.
During the fourth quarter of 2007, the Investment Manager decided to reduce the emphasis on achieving private equity-type returns and to
increase the focus on capital preservation. Positions in the long-only managers were exited at the beginning of 2008 and, during the second
quarter 2008, we began to redeem the positions in long/short equity and credit Funds.
We have been researching a number of more lowly correlated, low volatility managers during recent months. In the immediate future, we
have decided to hold the majority of the redemption proceeds in cash, although some of those proceeds have been reinvested in two Funds. The
first Fund is Renaissance Institutional Futures Fund ("RIFF"), to which we made a subscription at the beginning of September 2008.This
position was funded through 90% of the redemption proceeds from the Company's holding in Renaissance Institutional Equities Fund ("RIEF"),
while the other 10% was of those redemptions proceeds were redeemed into cash. A second investment was made immediately after the reported
period end into Kaiser Trading Fund, a short-term-focused, low-volatility managed futures Fund and a lower levered version of the Kaiser
Fund held in the Strategic Hedge Funds portfolio.
The holding in Platinum Grove Contingent Capital Offshore Fund was also redeemed at the end of August 2008. Enso Global Equities Fund
was redeemed on 30 September 2008; Oak Hill Credit Alpha Fund Offshore Limited, York Asian Opportunities Unit Trust, and York European
Opportunities Unit Trust were held until the end of September and then redeemed. Most of the proceeds from these Funds have been received
during October 2008. Therefore, at the beginning of October 2008, the Transitional portfolio held four Funds: RIFF, Aarkad plc, Defender
Ltd, and Kaiser Trading Fund.
Strategic Hedge Fund portfolio review
There are 13 Funds in the Strategic Hedge Funds portfolio. In the reported period, the performance varied significantly between the
second and third quarters 2008 whereby the second quarter 2008 gross return was 6.5% and the third quarter 2008 gross return was -4.8%. The
combined gross return for the six months ended 30 September 2008 was 1.43%.
The Strategic Hedge Funds portfolio is designed to deliver long-term returns, targeting a 12% net annual return within 5%-7% volatility.
During the reported period, the annualised volatility of this portfolio was 7.82%. The portfolio takes a concentrated investment approach,
investing in between 10 and 15 Hedge Funds across the five main hedge funds strategies as set out in the Summary on page 32.
At the beginning of April 2008, inflationary fears and declining growth were dominant themes across global markets. Despite the negative
market sentiment and equity markets coming under pressure, the portfolio was able to take advantage of opportunities presented by the
volatile markets.
The managers in the Strategic Hedge Funds portfolio demonstrated encouraging resilience over the second quarter 2008. Lansdowne UK
Equity benefited from short positions in UK financial and consumer-related areas; Arcas MAC 79 Ltd., Paulson Advantage Plus Ltd., Hard
Assets 2X Fund Ltd. and Kaiser Trading Diversified 2X Segregated Portfolio all delivered positive returns. Atticus European Fund Ltd. was
one Fund that found the market environment particularly tough going.
In the third quarter 2008, severe declines in global equity markets were coupled with an increase in volatility, which saw the Chicago
Board Options Exchange SPX Volatility Index ("VIX") reach an all time high in September 2008. Despite the negative returns over the third
quarter 2008, the majority of the Portfolio's managers continued to demonstrate resilience in the difficult global markets, identifying and
taking advantage of opportunities.
September 2008 was recorded as the worst month ever for Funds of Hedge Funds, yet our managers proved their capability to preserve
capital in challenging market conditions. While the short selling ban tended to negatively impact most dedicated short sellers, Arcas defied
the trend, delivering strong returns, as did Kei Ltd.
Reflecting on the six months' performance overall, Kei Ltd. was the stand-out performer, delivering exceptionally strong and impressive
returns. Significant returns were also delivered by Paulson Advantage Plus Ltd., Rye Select Broad Market XL portfolio Ltd. and Arcas MAC 79
Ltd. By contrast, Atticus European Fund Ltd. was a substantial drag on performance.
Three changes were made to the Strategic Hedge Funds portfolio during the reported period. The Company redeemed from Abchurch Europe
Fund at the end of June 2008 and new subscriptions were made to Alydar Fund Ltd., a Boston-based long/short equity Fund, and to Evergreen
MAC Ltd., a managed futures Fund that follows systematic long-term trends, in July and August 2008 respectively.
The Company has also submitted redemption notices to Arcas MAC 79 Ltd., effective 31 October 2008 and to Atticus European Fund Ltd.,
effective 31 December 2008.
The redemption notice that had been submitted to Deephaven Global Multi-Strategy Fund Ltd. at the end of August 2008 and was scheduled
to become effective on 30 November 2008 has been invalidated by the announcement on 30 October 2008 by Deephaven Capital Management LLC that
it was suspending redemptions and withdrawals with immediate effect.
The Company has been informed by Deephaven to expect an investor update on its proposals in mid-December 2008, but at the time of
writing, the Company has received no further communication as to what those proposals might be or how Deephaven is likely to be affected by
the continued market volatility ahead of that investor update. The Company's investment in Deephaven Global Multi-Strategy Fund Ltd.
represents 3.2% of the Company's total net asset value.
A number of the Company's Hedge Funds' managers have reminded the Investment Manager of their redemption terms in recent weeks. None of
the managers of Hedge Funds in the Company's Transitional portfolio have changed their redemption terms at the time of writing. In the
Strategic Hedge Funds portfolio, Atticus European Fund Ltd has introduced a 20% sidepocket in relation to the Fund's investment in Deutsche
Bourse, which was not in place when the Company first invested, but which was provided for in the Fund's Offering Memorandum. Monies may
only be redeemed from a sidepocket when the manager has sold the investment to which that sidepocket relates.
Portfolio Strategy & Outlook
During the first six months of the Company's financial year, the Investment Manager refined the Company's Portfolio to reflect the
deteriorating economic climate. This process began at the beginning of 2008 with the elimination of long-only equities from the Transitional
portfolio and has completed with the redemption from the remaining Funds with equity bias and a decision to maintain increased cash reserves
in the short-term. Despite the defensive position that the Investment Manager has implemented, the Company's Portfolio has not been immune
to the widespread impact of the global financial downturn and we believe that some further fair market value write-downs across the
Company's Portfolio are likely during the next six months.
The defensive action has eliminated the long-bias that remained in the Transitional portfolio at the start of the reported period. The
intention is, in time, to reinvest part of the Transitional portfolio into lower risk, lower volatility strategies. We have focused our due
diligence on short-duration managed futures strategies and funds which provide stable monthly returns, similar to Defender Ltd. We are also
considering a small exposure to macro funds to take advantage of the market volatility. We intend to maintain cash reserves in order to meet
capital calls from the Private Equity and Specialty Funds. In the immediate future, however, we are not expecting to make any new
investments in the Transitional portfolio.
The Strategic Hedge Funds portfolio maintains a significant long-volatility bias, and the Investment Manager remains confident it will
provide strong diversification irrespective of market directionality. We will continue to monitor Funds that have struggled in the financial
markets' downturn and will, if necessary, redeem from those Funds we feel may continue to find it difficult to deliver returns in the
challenging market conditions.
The Investment Manager has adopted a cautionary stance in the Company's Private Equity and Specialty Funds portfolios since inception.
We chose managers which invested on a relatively limited basis in the 2007 vintage, when valuations were at their highest, and we invested
reasonably heavily into distressed debt managers, which should benefit from the current depressed economic environment.
The Company has substantially completed its Private Equity and Specialty Funds investment programme. The Investment Manager has tilted
the Company's investment in 2008 vintage funds towards distressed and uncorrelated investments, as the Investment Manager believes these
investments will perform well in the current environment.
Since the Company's investment programme is largely completed, the Investment Manager's focus has shifted to monitoring the exposures of
the managers to protect the Portfolio from developing market and manager risk. This will be a continual process as we expect markets to
remain volatile and the general direction to remain negative for sometime.
Portfolio Holdings (Invested Capital) as at 30 September 2008
Fund Description Style Portfolio Weighting Liquidity Size of underlying
% (see footnotes) Fund
(see footnotes)
PRIVATE EQUITY AND SPECIALTY
FUNDS PORTFOLIO
AIG Brazil Special Situations AIG Brazil is one of Latin America 0.7% Long-term US$692 million
Fund II L.P. the major private Mid-Cap Growth
equity firms Equity
investing in Latin
America, focusing
primarily on Brazil,
Mexico and Colombia.
The Fund takes
significant minority
positions in
companies well
placed to capitalise
on the region's
sustainable
competitive
advantages, growing
domestic consumption
and increasing
consolidation
opportunities. The
performance of the
current investment
has been
satisfactory to
date.
Coller International Partners Coller is a Global Secondaries 1.7% Long-term US$4.78 billion
V L.P. secondaries private Private Equity
equity manager that Transactions
purchases Limited
Partnership
interests in primary
private equity funds
on the secondary
market and also
directly acquires
portfolios of
companies from
corporations looking
to divest non-core
assets.
It invests globally
and is performing
according to its
intended aim for the
Company, which is to
provide vintage
diversification to
the Company's
private equity
investments and
provide
distributions that
can be used to
reinvest into
further private
equity funds.
DFJ Athena L.P. DFJ Athena is an Korea and U.S. 1.2% Long-term US$28 million
affiliate fund of Early-Stage Venture
Draper Fisher Capital
Jurvetson, one of
the most historic
and prestigious
venture capital
firms in the U.S.
The Fund takes
minority positions
in start-up entities
in Korea or in U.S.
companies of Korean
entrepreneurs and
one of its key
advantages is the
leverage of Draper
Fisher Jurvetson's
global venture
network. The Fund is
in the early stages
of investing its
capital and the
operating
performance of the
current investments
has been good to
date.
Goldman Sachs Capital Partners GSCP is the private Global 2.1% Long-term US$20.3 billion
VI L.P. equity arm of Mega Buy-out
Goldman Sachs and
uses the investment
bank's ability to
source deal flow to
invest in private
equity transactions
globally across all
market cap sizes.
The Fund does not
focus on any
particular strategy;
instead, it makes
opportunistic
investments that
come from Goldman's
extensive network of
contacts. As of 30
September 2008, the
Fund had invested
US$12.2 billion of
its US$20.3 billion
of capital
commitments.
Greenpark International Greenpark is a Europe 5.0% Long-term EUR732.3 million
Investors III L.P. secondaries private
equity manager that
primarily purchases Secondaries Private
Limited Partnership Equity Transactions
interests in private
equity funds on the
secondary market.
Its core focus is on
Europe. The manager
is performing
according to its
intended aim for the
Company, which is to
provide vintage
diversification to
the Company's
private equity
investments and to
provide
distributions that
can be used to
reinvest into
further private
equity funds.
H.I.G. Bayside Debt & LBO Fund H.I.G. is one of the U.S. 0.1% Long-term US$3.0 billion
II L.P. leading lower-middle
market private
equity firms, Distressed debt and
specialising in growth equity
distressed and
distressed-for-
control transactions
in the U.S. The
Manager is based in
Miami and has a
track record dating
back to 1993. H.I.G.
is well-positioned
to benefit from the
environment created
by the credit crisis
as there are a
growing number of
distressed
opportunities in the
market, especially
in the lower-middle
market.
Lehman Brothers Venture Lehman Brothers U.S. 1.1% Long-term US$365 million
Partners V L.P. Venture Partners Mid-Stage Venture
invests in the Capital
mid-stage rounds of Co-Investment
venture financing
alongside many of
the top-tier venture
capital firms in the
U.S. Lehman Ventures
specialises in
business and
financial execution
and does not try to
compete with the
early-stage venture
capital firms with
which it partners.
The Fund is in the
early stages of
investing its
capital and the
operating
performance of the
current investments
has been good to
date.
The Lehman Brothers
funds are separate
legal entities from
Lehman Brothers
Holdings Inc.
LimeTree Emerging Beachfront The manager invests Asia Pacific 0.0% Long-term US$343 million
Land Investment Fund II L.P. in undervalued
beachfront land
across the Asia Beachfront land with
Pacific region. development
potential
The Fund is managed
by LimeTree Capital
and this is the
manager's second
fund.
LimeTree combines a
comprehensive
top-down analysis of
a country's
stability, prospects
and legal practices
with a rigorous
bottom-up analysis
of individual plots
of beachfront land.
These plots should
expect to benefit
from improvements in
infrastructure and
access over a three
to seven-year time
horizon. The manager
does not develop the
land itself.
MatlinPatterson Global MatlinPatterson is a Global 1.8% Long-term US$5.0 billion
Opportunities Partners III distressed-for- Distressed-for-
L.P. control manager Control
investing on a
global basis. The
manager primarily
takes positions in
companies in
distressed
situations with the
aim of controlling
and driving the
financial and
operational
restructuring of the
company.
The portfolio
comprises companies
in healthcare
insurance, home
building, upscale
mortgage lending,
pharmaceutical
distribution and air
freight forwarding
industries. In these
challenging times,
the most fragile of
the manager's
portfolio companies
is in mortgage
lending, where
origination and
securitisation
markets in the U.S.
have almost ground
to a halt.
Oaktree OCM Opportunities VIIb Oaktree's distressed Global 1.7% Long-term US$10.9 billion
L.P. debt team has a
record of successful
investing in the Tradeable Distressed
debt of financially Debt
distressed companies
and its approach
seeks to combine
protection against
loss, which comes
from buying claims
on assets at bargain
prices, with the
substantial gains to
be achieved by
returning companies
to financial
viability through
restructuring.
Distressed debt can
be an attractive
asset class during
an economic or
financial downturn
and Oaktree's "b"
Funds (follow-on
funds to the regular
funds) are created
in anticipation of
acute distressed
periods in economic
cycles. The Company
expects the Fund to
provide strong
returns given the
current environment.
Pine Brook Capital Partners Pine Brook is a Global 0.7% Long-term US$1.26 billion
L.P. recently established Large-Cap Growth
manager founded by Equity
Howard Newman, the
former Vice-Chairman
of Warburg Pincus
where he was in
charge of their
energy and financial
services investment
practices.
Pine Brook focuses
on building
mid-to-large-cap
businesses in the
energy and financial
services sectors,
employing a strategy
of investing ahead
of current industry
practices and/or
taking advantage of
under-served
markets. The Fund
has invested in
eight companies and
the operating
performance of the
businesses is on
plan.
Rho Ventures VI L.P. Rho Ventures VI is a U.S. Early-to-Late 0.2% Long-term US$510 million
venture capital and Stage Venture
growth equity Capital
limited partnership
that intends to make
diversified
investments in the
communications,
energy technology,
healthcare,
information
technology and new
media sectors. As of
October 2008, the
Fund has made three
investments and is
performing as
expected.
Silver Lake Partners III L.P. Silver Lake is Global 0.9% Long-term US$9.3 billion
considered the Large-Cap Buy-out
leading technology
specialist in the
large-cap private
equity buy-out
sector. The firm
invests globally in
established,
cash-flow generative
businesses which are
leaders in their
respective
industries. The
manager has
completed four
transactions and has
reported good
operating
performance to date.
SVG Strategic Recovery Fund II The Fund is managed UK 1.4% Long-term �55 million
L.P. by SVG Investment Activist Shareholder
Managers (SVGIM). in Small-Cap
The Fund's approach Companies
is to take large
minority stakes in
publicly-listed,
small-to-medium-
sized UK companies,
which SVGIM believe
would benefit from
strategic,
operational or
management
initiatives.
SRFII currently
consists of 11
companies and
although values have
been impacted by the
current market
volatility, the
manager believes
that the current low
valuations are
presenting some good
opportunities for
investment. The
manager also
believes that the
portfolio's
characteristics and
the success of the
recent realisation
of Civica, which
generated a 69% IRR
and 1.3x investment
multiple, are
demonstrating that
the Fund is well
positioned to take
advantage of such
opportunities as
they arise.
Terra Firma Capital Partners Terra Firma is Europe 1.9% Long-term EUR5.4 billion
III L.P. focused on strategic Large Buy-out
turnarounds of
mid-to-large-cap
companies. The firm
has a large
investment team with
substantial
operating experience
and actively
participates in the
restructuring of its
portfolio companies
to generate value.
The manager has
completed two deals
to date: one was an
add-on acquisition,
Pegasus Aviation, to
AWAS, a portfolio
company in the prior
vintage fund; the
other deal was the
acquisition of EMI,
which the manager
plans to refocus
more on digital and
licensed music
rather than sales of
physical music.
Despite a
challenging market
environment, the
operating
performance of the
current investments
has been good to
date.
Thoma Bravo Fund IX L.P. Thoma Bravo LLC is U.S. Growth Equity 0.4% Long-term US$800 million
one of the most
established U.S.
private equity
firms, with a track
record dating back
to 1980. The firm
focuses on
buy-and-build
investing in
software, services
and other
consolidating
industries. The Fund
made its first
investment on 1
April 2008, by
acquiring
Macrovision's
Software Business
Unit (renamed
Acresso), a
market-leading
provider of
installation and
licence-entitlement
software.
Thomas H. Lee Parallel Fund VI Thomas H. Lee U.S. 3.5% Long-term US$8.1 billion
L.P. Partners is one of Mega Buy-out
the most established
large-cap private
equity firms in the
U.S. The firm has
continued to focus
primarily on the
U.S., with
opportunistic
investments in
Europe. The manager
has invested in
eight transactions
and current
investments have
performed well
overall given the
reasonable entry
multiples that the
manager was able to
obtain and the
generally good
operating
performance to date.
STRATEGIC HEDGE FUNDS
PORTFOLIO
Abchurch Europe Fund Ltd. The manager is a Europe Redeemed N/A N/A
London- based Long/Short
long/short hedge
fund manager
primarily investing
in large and mid-cap
stocks of Western
European companies.
The investment was
redeemed as at 1
July 2008.
We were disappointed
with the performance
of this Fund, which
we felt would
benefit from the
macro-economic
element of their
portfolio
construction
process.
Alydar Fund Ltd. Alydar Capital is a U.S. Long/Short 4.2% 90 days US$1.75 billion
Boston based
long/short equity
Fund focusing on No lock-up
small & mid cap No early redemption
companies. penalties
The Fund was added
to the portfolio on
1 July 2008 and,
therefore, joined
the portfolio just
as the hedge fund
industry experienced
its worst ever
period.
The third quarter
2008 was a difficult
period for
long/short managers,
as equity markets
plummeted. As a
result, Alydar's
long/short strategy
has provided mixed
results, however, it
has dramatically
outperformed its
peer group.
Arcas MAC 79 Ltd. Arcas is a dedicated U.S. Short Selling 1.5% 30 days US$216 million
short-seller with a
diversified
portfolio of U.S. No lock-up
stocks. No early redemption
penalties
This strategy has
performed well in
the declining
markets that have
characterised the
period.
The manager provides
diversification for
the portfolio and
offers protection
during periods of
equity market
weakness.
Arcas provided
downside protection
in declining markets
and contributed
strongly to the
performance of the
portfolio.
Atticus European Fund Ltd. The manager adopts Special Situations 0.7% 90 days US$4.4 billion
an event or catalyst
value investing
approach with a No lock-up
concentration on No early redemption
Europe, through the penalties
use of merger
arbitrage and
opportunistic event 20% redemption gate
trading with sidepocket in
significant exposure relation to the
to special Fund's investment in
situations events Deutsche Bourse.
i.e. spin-offs,
restructurings,
rights issues.
The Fund also
employs short -term
opportunistic
trading strategies.
Volatility is to be
expected due to
large position
sizes.
The manager suffered
heavy losses over
the period. Given
that the manager
maintains
concentrated
positions, the heavy
losses in declining
markets are not
surprising. However,
due to the small
position in the
Fund, we were able
to limit the overall
impact on the
portfolio. In light
of the current
market and
performance, Atticus
has reduced net
exposure
considerably.
D.E. Shaw Oculus International The manager is a Global Trading 4.6% 90 days US$11.87 billion
Members Interest systematic macro
trader trading four
sub-strategies: No lock-up
futures and No early redemption
currency-related penalties
strategies, equity
statistical
arbitrage Redemption gate:
strategies, asset 8.3%
class-based
inefficiencies and
discretionary
investing.
The Oculus Fund is
amongst the
strongest performing
global macro funds
since its inception
in April 2004 and we
believe it will
provide strong
returns and
diversification.
The manager has held
its ground in the
tumultuous
environment and has
been prudent in
reducing gross
exposure.
Deephaven Global Deephaven is a U.S. Multi-Strategies 3.2% All redemptions US$1.12 billion
Multi-Strategy Fund Ltd. based multi-strategy Relative Value suspended as of 30
relative value October 2008 until
manager. further notice.
The manager pursues
five principal
strategies:
event-driven,
credit-driven,
volatility/
quantitatively,
fundamental equity
and global relative
value macro.
This experienced
manager offers a
diversified exposure
to the opportunities
across a number of
relative value
strategies.
However, the manager
experienced a
difficult period,
particularly in
September, where the
manager lost heavily
in the convertible
bond arbitrage
space. Deephaven has
informed the Company
that it has
suspended
redemptions from
this Fund and that
it will update its
investors with
proposals in
mid-December 2008.
Evergreen MAC Ltd. The investment Systematic Long-Term 1.3% 1 day US$7.2 billion
approach is Trend Following
statistical
research-oriented. No lock-up
No early redemption
penalties
The strategy is 100%
trend-following
without any
discretionary input.
Given the sharp
reversals and sector
rotations in the
summer months, the
manager had some
difficulty pursuing
its long-term trend
following strategy.
The Fund was added
to the portfolio on
1 August 2008, just
as some of the more
established trends
had turned, so the
first month was
difficult, but
subsequently the
manager has begun to
generate positive
returns. We expect
the manager to
generate
non-correlated trend
following returns
for the portfolio
and to provide
diversification.
Managed futures
continue to offer
downside protection
during this period
of unstable equity
markets and severe
volatility across
the board.
Hard Assets 2X Fund Ltd. Hard Assets is a Commodities 3.8% 90 days US$628 million
U.S. based
multi-strategy
commodity manager. 180 days lock-up
The Fund seeks to 2% penalty for early
generate absolute redemption
returns through
leveraged
investments in
natural resource
equities and
commodities. The
focus is on
commodity equities,
with alpha sourced
from fundamental
stock picking and
not an active
trading approach.
The manager also
trades equities vs.
commodities futures.
The manager's
returns in the first
half of the reported
period offset the
losses in the third
quarter as commodity
prices fell and
drove commodity
equities lower.
Kaiser Trading Diversified 2X The manager is a Systematic 1.7% 30 days US$1.12 billion
Segregated Portfolio short-term trader Short-Term Trading
taking trading
opportunities by No lock-up
using a systematic, No early redemption
computer-based and penalties
statistically-
validated approach
built around the
trading psychology
of the markets. The
system has four
major components:
R&D environment,
money management,
risk measurement and
trading rules.
The manager trades
over 30 different
markets including
foreign exchange,
bonds, global
equities, metals,
energy and soft
commodities.
The manager was able
to offset negative
months with positive
months to end the
period contributing
to performance.
Kei Ltd. This is a U.S. based Systematic 1.8% 1 day US$770 million
short-term trader. Short-Term Trading
The manager employs
over 2,500 No lock-up
quantitative trading No early redemption
models to predict penalties
short and
medium-term price
movements in global
futures markets.
The systems are 30%
trend- following,
30% non-trend
following, 40%
price-pattern
trading. The manager
profited across a
wide range of
sectors, profiting
from increased
realised volatility.
The Fund should have
low correlation to
most other
strategies making it
a good portfolio
diversifier.
The manager's
performance over the
reported period was
strong, taking full
advantage of the
volatility.
King Street Capital Ltd. This is a New Distressed 2.4% 90 days US$11.6 billion
York-based
distressed Fund.
360 days lock-up
A well established
and experienced 4% early redemption
manager, King Street penalty
has an attractive
set of skills in
credit markets: the
ability to trade
credit markets from
the short side, as
well as participate
in more typical
periods of strong
distressed
performance - namely
when spreads tighten
during an economic
recovery.
The distressed space
has been difficult
to navigate even for
the most experienced
of managers, as
investment grade and
high yield spreads
remain volatile in
this difficult
credit market.
Despite negative
aggregate return
over the period, the
manager has proven
its ability to take
advantage of arising
opportunities.
Lansdowne UK Equity Fund The manager focuses Europe 3.6% 90 days US$7.6 billion
on long/short Long/Short
opportunities within
the European mid-cap No lock-up
sector. The manager No early redemption
employs a bottom-up penalties
approach to
investing.
Redemption gate: 10%
The manager's
principal thematic
exposure of long
mining/short
financials has
produced variable
returns over the
period. The
manager's bearish
stance on financials
and bullish view on
the mining sector
contributed
positively to
performance through
June. However,
following the severe
market rotation in
July, this trade
came under stress
and detracted from
returns.
Lansdowne remains a
leading UK
long/short equity
Fund. We see it as a
significant
generator of returns
over the
medium-term.
Paulson Advantage Plus Ltd. The manager employs Special Situations 4.3% 90 days US$9.5 billion
a diversified
special situations
strategy with the 90 days lock-up
flexibility to 2% early redemption
allocate to credit penalty
instruments on an
opportunistic basis.
Redemption gate: 10%
The manager
concentrated its
long positions in
those parts of the
economy that are
less cyclical
including
healthcare, tobacco
and utilities and
concentrated its
short positions in
financials.
We view the Fund as
a good diversifier
and a strong return
driver.
The manager had an
excellent period,
making a strong
contribution to the
overall performance
of the portfolio.
The manager's
bearish stance on
the financial sector
continues to be a
strong hedge in the
current financial
climate.
Rye Select Broad Market XL The Fund is a Derivative Arbitrage 4.3% 90 days US$342 million
Portfolio Ltd. relative value fund
which specialises in
derivative arbitrage No lock-up
and index trades. No early redemption
penalties
The manager operates
a split-strike
conversion strategy,
which consists of
the purchase of a
basket of equities,
the purchase of a
put option and the
sale of a call
option. The strategy
has provided
relatively
consistent
performance for the
reported period.
During the months
that the manager
felt there were no
sufficient
investments to take
advantage of, it
invested in Treasury
Bills, which
protected the Fund.
The Rye Select Fund
is three-times
leveraged. The
strategy employed by
the manager has
worked well over the
period.
Transitional portfolio
Aarkad Plc Aarkad plc builds a Structured Finance 3.6% 180 days US$472 million
diversified No lock-up
portfolio of No early redemption
highly- penalty
collateralised
speciality
structured finance Redemption gate: 20%
loans primarily
consisting of
short-term duration
(3-12 months) loans,
secured against
commercial real
estate in the UK and
Ireland, typically
with a first charge.
The Fund continues
to generate steady
interest-based
returns as intended.
Defender Ltd. The majority of Relative Value 4.9% 10 days US$518 million
Defender's assets
are traded by
Bernard L. Madoff No lock-up
Securities LLC, No early redemption
based on a trading penalties
authorisation
agreement with the
Fund.
Madoff Securities is
a leading
international market
maker in all of the
S&P 500 stocks.
Madoff Securities
implements a
strategy that
consists of a long
position in a basket
of S&P 100 shares
and an index option
strategy against
these shares (bull
spread). Madoff
Securities will only
enter into this
trade if it believes
that it can profit.
Otherwise, the money
is invested in U.S.
Treasury Bills. The
Fund is providing
solid, steady
returns.
Enso Global Equities Fund Ltd. Enso is a long/short Market Neutral Redeemed 30 90 days notice for US$450 million
global equities September 2008 quarterly liquidity
manager strongly
reliant on in-house
in-depth analysis. One year lock-up
The Fund aims to
maintain a very low
equity beta and it 3% penalty for early
has been frustrating redemption
for the manager that
despite this the
Fund has experienced
significant drawdown
figures in the third
quarter of 2008.
The Company has
redeemed its holding
in Enso, effective
30 September 2008.
Oak Hill Credit Alpha Fund Oak Hill is a credit Relative Value 2.9% 60 days US $1.9 billion
Offshore Ltd. long/short hedge
Fund. It invests
across the capital One year lock-up
structure in North
America and Europe
through long/short 3% early redemption
and capital penalty
structure arbitrage
trades. The manager
is focusing on Redemption gate: 20%
preserving capital
and maintaining a
very high level of
liquidity in the
current environment
and expects the
coming months to
remain challenging
due to both systemic
issues and also poor
technicals in the
high yield and
leveraged loan
markets.
The Company has
redeemed its holding
in Oak Hill,
effective 1 October
2008.
Platinum Grove Contingent The manager invests Relative Value Redeemed N/A N/A
Capital Offshore Fund Ltd. in credit arbitrage 29 August 2008
strategies such as
yield curve, credit
class, and issue
arbitrage. Recent
and continuing
increases in
volatility have
contributed to an
attractive
opportunity set for
the Fund though the
manager continues to
maintain a
conservative
exposure profile in
the current
environment in order
to hedge against the
possibility of tail
risk events.
The Company has
redeemed its holding
in Platinum Grove,
effective 29 August
2008.
Renaissance Institutional RIEF is a Equity Hedged Redeemed N/A N/A
Equities Fund International quantitative U.S. 30 August 2008
L.P. equity long/short
Fund. The Fund is
net 100% long at any
one point and it may
have a maximum
position of 175%
long and 75% short.
It also aims to
minimise the equity
beta within the
Fund.
The Company has
redeemed its holding
in RIEF, effective
30 August 2008.
Renaissance Institutional RIFF is a leveraged, Futures Trading 2.9% 35 days US$6.2 billion
Futures Fund L.L.C. slow trading, global
futures and forwards
Fund investing in a No lock-up
diversified No early redemption
portfolio mainly penalties
comprising of
positions in the
futures and forward
markets in foreign
currencies,
government
instruments, energy,
equity indices and
traditional
commodities.
The Company invested
in RIFF on 1
September 2008.
Whilst the Fund has
encountered
difficulties in the
recent highly
volatile environment
the manager is
confident about the
long- term prospects
of the Fund.
York Asian Opportunities Unit York Asian is an Equity Hedged 3.0% 60 days US$530 million
Trust Asian event-driven
Fund with a strong
focus on valuation. One year lock-up
The Fund invests 2% early redemption
across event penalty
equities, credit,
value equities and
risk arbitrage in Redemption gate: 20%
the Asian region
including Japan. The
manager is keeping
exposure low in the
current market
conditions but
continues to look
for good stocks
available at
extremely low
prices.
The Company has
redeemed its holding
in York Asian,
effective 1 October
2008.
York European Opportunities York European has a Equity Hedged 6.2% 30 days US$3.2 billion
Unit Trust diversified European
event-driven and
value-oriented No lock-up
strategy that No early redemption
favours penalties
catalyst-driven
investments,
principally in
Europe, but possibly
opportunistically
outside Europe. The
manager has reduced
overall exposures in
response to recent
market turmoil but
believes the current
market weakness has
produced real
opportunities on a
medium-term horizon
which the manager
has sought to take
advantage of
selectively.
The Company has
redeemed its holding
in York European,
effective 1 October
2008.
Footnotes
1 Note that the Fund sizes given are based on the latest information provided to the Company by the managers of the
underlying Funds.
2 The liquidity notice periods are intended to provide a guide to investors only. Terms and conditions apply in each
individual case and may be subject to change. Early redemption penalties may apply. Notice may be required to be given at the end of a
specified period such as a quarter-end.
3 A redemption gate is a restriction placed on some Funds, at the manager*s discretion, that limits the amount of
withdrawals from the Fund, during one redemption period. Note that redemption gates may be subject to change at the manager*s discretion.
Management and Administration
Directors
B. P. Larcombe - Chairman
C. N. Anquillare, JP
M. P. S. Barton
M. D. Buckley
N. D. Moss
Investment Manager
Bramdean Asset Management LLP
35 Park Lane
London W1K 1RB
Company Secretary, Administrator and Registered Office
RBC Offshore Fund Managers Limited
Canada Court
Upland Road
St. Peter Port
Guernsey GY1 3QE
Custodian
Royal Bank of Canada (Channel Islands) Limited
Canada Court
Upland Road
St. Peter Port
Guernsey GY1 3BQ
Company Brokers
Cenkos Securities plc
6,7,8 Tokenhouse Yard
London EC2R 7AS
JPMorgan Cazenove
20 Moorgate
London EC2R 6DA
Independent Auditors
PricewaterhouseCoopers CI LLP
PO Box 321
National Westminster House
Le Truchot
St. Peter Port
Guernsey GY1 4ND
Management and Administration - continued
UK Solicitors to the Company
Simmons & Simmons
CityPoint
One Ropemaker Street
London EC2Y 9SS
Guernsey Advocates to the Company
Ogier
Ogier House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1W
Registrar
Capita Registrars (Guernsey) Limited
Longue Hougue House
St. Sampson
Guernsey GY2 4JN
Summary Information
Incorporation
Bramdean Alternatives Limited (the "Company") was incorporated on 5 January 2007 in Guernsey, Channel Islands, with limited liability
under The Companies (Guernsey) Law, 1994 (as amended) as an investment holding company, registered company number 46192. The Company is now
a closed-ended investment company registered in Guernsey following its admission to the London Stock Exchange. Trading in the Company's U.S.
Dollar and Sterling shares commenced on 9 July 2007.
Synopsis
The Company's assets are managed by Bramdean Asset Management LLP ("Bramdean") where the investment team consists of five investment
professionals and is led by Nicola Horlick, Chief Executive Officer of Bramdean.
The annual management fee is 1.5% with a 10% performance fee subject to an 8% preferred return, with a high watermark.
As part of the discount control mechanisms, the Board will consider implementing a Share buy-back at each quarterly Board meeting should
the Shares have been trading at a discount to net asset value of 10% or more for more than 90 days. The Company has the authority to manage
demand flows for its Shares by purchasing up to 14.99% of each class of Share. Up to 10% may be held within its Treasury function and
resold. The remainder will be cancelled. Annual shareholder approval will be sought to renew this authority.
Investment objective and policy
The investment objective of the Company is to generate long-term capital gains. The Company invests in a diversified portfolio of
Private Equity Funds, Hedge Funds and other Specialty Funds as described below. The Company may also hold direct holdings in unquoted
companies and quoted securities.
The Company seeks to hold a broadly diversified portfolio of investments by country, industry sector, investment stage and size of
investment, as well as by strategy.
The Company seeks to operate within the asset allocation ranges set out below. While the Company is establishing its strategic
allocation to Private Equity Funds and Specialty Funds, the Company manages the capital that is committed but not yet called in a
Transitional portfolio. The investment remit of the Transitional portfolio has been refined during the course of 2008, reducing the emphasis
on achieving private equity-type returns and increasing the focus on capital preservation over the medium-term and liquidity so that the
Company can satisfy capital calls.
Asset allocation ranges:
The Company currently operates on the basis of the following long-term asset allocation ranges:
Private Equity Funds and Direct Holdings 30%-60%
Strategic Hedge Funds 15%-45%
Specialty Funds 10%-30%
The actual percentage of the Company's gross assets invested in Private Equity Funds & direct holdings, Strategic Hedge Funds and
Specialty Funds may fall outside of these ranges.
Private Equity Funds and direct holdings
The Private Equity Funds portfolio comprises investments primarily in the buy-out, growth equity, venture capital and secondaries
sectors. The Company may also make co-investments, either directly with the general partners of the private equity funds that the Company
invests in, or via a co-investment fund. The underlying Private Equity Funds are expected to be primarily invested in Europe and the United
States.
No co-investments have been made to date.
Strategic Hedge Funds
The Company invests in a concentrated range of Hedge Funds which pursue multiple investment strategies - specifically: Relative Value,
Event Driven, Equity Hedged, Global Macro and Managed Futures to create balance within the portfolio. The Company will typically hold 10 -
15 underlying Hedge Funds at any given point in time within its Strategic Hedge Funds portfolio. The Strategic Hedge Funds portfolio is
neither style nor strategy specific.
RMF Investment Management - Nassau Branch ("RMF") has been appointed as Investment Sub-Manager under the terms of an Investment
Sub-Management Agreement. RMF is responsible for taking decisions on all individual hedge funds which form part of the Company's Strategic
Hedge Funds portfolio.
Specialty funds
The Company invests in a globally diversified portfolio of specialty funds which include, but are not limited to:
* Real estate funds;
* Infrastructure funds;
* Natural resources funds; and
* Structured finance funds.
Schedule of investments
The schedule of investments held by the Company as of 30 September 2008 is set out from page 50.
Over-commitment
The Company recognises that the capital it commits to its Private Equity and Specialty Funds is likely to be drawn over a medium-term
period. So that the Company's portfolio may be as fully invested as possible, the Company pursues an over-commitment policy relative to its
commitments on a fully-drawn basis. The Company's over-commitment position as at 30 September 2008 is detailed on page 8.
Gearing
The Company may borrow up to 25 per cent of the net asset value of the Company for short-term purposes as may be necessary for
settlement of transactions, or for long-term purposes to fund over-commitments, to fund hedging contracts or to meet ongoing expenses. The
Company will also be geared indirectly to the extent that underlying funds are themselves geared.
The Company had no debt as at 30 September 2008 and has no credit facility in place with any bank.
Share Conversion election
Investors may have the opportunity to convert their Shares from one currency Share class to another twice per year, on 30 April and 31
October. At the maiden conversion election in April 2008, some shareholders took this opportunity and as a result the split of the Company's
share capital between the Sterling and U.S. Dollar Share classes changed.
At 30 September 2008, the Company's issued share capital was split as follows:
Number of issued Sterling Shares 97,701,842 (59.7%)
Number of issued U.S. Dollar Shares 65,988,142 (40.3%)
Total Shares in issue 163,689,984
Number of Sterling voting rights 197,299,100 (75%)
Number of U.S. Dollar voting rights 65,988,142 (25%)
Total voting rights 263,287,242
For comparison, at 31 March 2008, the Company's issued share capital was split as follows:
Number of issued Sterling Shares 130,017,311 (98.6%)
Number of issued U.S. Dollar Shares 1,785,000 ( 1.4%)
Total Shares in issue 131,802,311
Number of Sterling voting rights 262,556,958 (99.3%)
Number of U.S. Dollar voting rights 1,785,000 ( 0.7%)
Total voting rights 264,341,958
Statement of Directors' responsibilities
The Directors confirm that this Interim Report and Condensed Half-Yearly Financial Statements have been prepared in accordance with IAS
34 and that the Interim Report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six months and their impact on the Condensed Half-Yearly
Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
* material related party transactions in the first six months and any material changes in the related party transactions described
in the last annual report.
The Directors of the Company are listed on page 28 of this Report.
The maintenance and integrity of the Bramdean Alternatives 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.
By order of the Board:
B. P. Larcombe N. D. Moss
Chairman Director
Independent review report
Introduction
We have been engaged by the Company to review the Condensed set of Financial Statements in the Half-Yearly Financial Report for the six
months ended 30 September 2008, which comprises the Condensed Half-Yearly Income Statement, Condensed Half-Yearly Balance Sheet, Condensed
Half-Yearly Statement of Changes in Equity, Condensed Half-Yearly Statement of Cash Flows and related Notes. We have read the other
information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of Financial Statements.
Directors' responsibilities
The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for
preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial
Services Authority.
As disclosed in note 2, the Annual Financial Statements are prepared in accordance with International Financial Reporting Standards
(IFRS). The condensed set of Financial Statements included in this Half-Yearly Financial Report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of Financial Statements in the Half-Yearly Financial
Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the
Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the
Half-Yearly Financial Report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers CI LLP
Chartered Accountants
21 November 2008
Condensed Half-Yearly Balance Sheet
As at 30 September 2008
30 September 2008 31 March
2008
Notes US$ US$
Assets
Financial assets at fair value 4 195,505,191 229,477,844
through profit or loss
Trade and other receivables 6 18,806,128 1,098,405
Cash and cash equivalents 15,904,643 27,948,491
Total assets 230,215,962 258,524,740
Liabilities
Trade and other payables 7 743,817 2,123,835
Total liabilities 743,817 2,123,835
Net assets 229,472,145 256,400,905
Represented by
Share capital 11 4 4
Share premium 11 258,608,139 259,186,780
Retained deficit 15 (29,135,998) (2,785,879)
Total shareholders' funds and 229,472,145 256,400,905
reserves
Net Asset Value Per Share
U.S. Dollar Shares
Sterling Shares USD 0.9109 USD 0.9782
GBP 0.9726 GBP 0.9855
The Condensed Half-Yearly Financial Statements on pages 33 to 48 were approved by the Board of Directors on
21 November 2008 and signed on its behalf by:
B. P. Larcombe N. D. Moss
Chairman Director
The notes on pages 37 to 48 are an integral part of these Condensed Half-Yearly Financial Statements.
30 September 2008
31 March 2008
Condensed Half-Yearly Income Statement
For the period from 1 April 2008 to 30 September 2008
1 April to 1 April to
30 September 2008 30 September2007
Notes US$ US$
Income
Net income from investments in 376,928
limited partnerships and -
directly held investments
Net interest income from cash 33,204 1,014,540
and cash equivalents
Net changes in fair value of 5 (24,141,968) 3,035,241
financial assets at fair value
through profit or loss
Net (loss) / income (23,731,836) 4,049,781
Expenses
Management fees 9 1,910,049 883,894
Directors' fees 9 187,694 122,324
Printing and communication 171,485 47,250
costs
Legal and professional fees 98,910 1,404,952
Administration fees 9 63,673 29,465
Custody fees 9 60,611 27,260
Audit fees 50,000 23,560
Brokerage fees 30,000 -
Directors' and officers' 23,305 20,249
insurance
Travelling expenses 16,000 8,848
Bank charges 6,556 2,770
Loan facility fees - 924,500
Total operating expenses 2,618,283 3,495,072
Net (loss) / income from (26,350,119) 554,709
operations
The loss for the period was derived from continuing operations.
There were no gains or losses other than those recognised in the Condensed Half-Yearly
Income Statement.
The notes on pages 37 to 49 are an integral part of these Condensed Half-Yearly Financial Statements.
Condensed Half-Yearly Statement of Changes in Equity
For the period from 1 April 2008 to 30 September 2008
Share Capital
Notes and Share Retained
Premium Deficit Total
US$ US$ US$
At 1 April 2007 4 (517,518) (517,514)
Issue of shares 265,177,652 - 265,177,652
Costs of share issue (5,789,235) - (5,789,235)
Net income from operations - 554,709 554,709
At 30 September 2007 259,388,421 37,191 259,425,612
At 1 April 2008 259,186,784 (2,785,879) 256,400,905
Repurchase of shares 11 (578,641) - (578,641)
Net loss from operations - (26,350,119) (26,350,119)
At end of period 258,608,143 (29,135,998) 229,472,145
The notes on pages 37 to 49 are an integral part of these Condensed Half-Yearly Financial Statements.
Condensed Statement of Cash Flows
For the period from 1 April 2008 to 30 September 2008
1 April to 1 April to
30 September 2008 30 September 2007
Notes US$ US$
Cash flows from operating
activities
(Loss) / income from (26,350,119) 554,709
operations
Adjustments for net changes in 5 9,254,482 *
fair value of financial assets (2,135,041)
at fair value through profit
or loss
(Decrease) / increase in trade (1,380,018) 694,559
and other payables
Increase in trade and other (17,707,723) (2,636,867)
receivables
Purchase of investments (69,062,242) (239,938,526)
Sale of investments 93,780,413 -
Net cash outflows from (11,465,207) (243,461,166)
operating activities
Cash flows from financing
activities
Repayment of loan 8 - (450,244)
Issue of shares - 265,177,652
Costs relating to issue of - (5,789,235)
shares
Repurchase of shares (578,641) -
Net cash (outflows) / inflows from financing (578,641) 258,938,173
activities
Net change in cash and cash equivalents for the (12,043,848) 15,477,007
period
Cash and cash equivalents at beginning of the period 27,948,491 -
Cash and cash equivalents at 15,904,643 15,477,007
end of the period
The notes on pages 37 to 49 are an integral part of these Condensed Half-Yearly Financial Statements.
Notes to the Condensed Half-Yearly Financial Statements
for the period from 1 April 2008 to 30 September 2008
1. General information
Bramdean Alternatives Limited (the "Company") was incorporated with limited liability and registered in Guernsey on 5 January 2007. The
Company's U.S. Dollar and Sterling Shares were listed on the London Stock Exchange on 9 July 2007 whereupon the Company became a
closed-ended investment company.
2. Significant accounting policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company's Financial Statements.
a) Basis of preparation
The Annual Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC).
The Condensed Half-Yearly Financial Statements for the period from 1 April 2008 to 30 September 2008 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Services Authority and International Accounting Standard 34, 'Interim Financial
Reporting'. The Condensed Half-Yearly Financial Statements do not include all of the information required for the Annual Financial
Statements and should be read in conjunction with the Annual Financial Statements for the year ended 31 March 2008, which have been prepared
in accordance with IFRS.
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2008, as
described in those annual financial statements.
The following standards and amendments to existing standards have been published and are mandatory for accounting periods beginning on
or after 1 January 2009 or later periods:
* IAS 1 Presentation of Financial Statements' (Revised)
* IAS 23 Borrowing costs (Amendment)
* IAS 32 Financial Instruments: Presentation (Amendment)
* IFRS 8 Operating segments
3. Taxation
The Company is domiciled in Guernsey. The Company is exempt from paying income tax in Guernsey. The Company is registered for taxation
purposes in Guernsey where it pays an annual exempt status fee which is currently �600 under The Income Tax (Exempt Bodies) (Guernsey)
Ordinances 1989.
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
4. Financial assets at fair value through profit or loss
30 September 2008 31 March 2008
US$ US$
Cost at beginning of the period 222,889,855 435,570
Additions 69,062,242 337,295,667
Disposals (87,693,267) (111,917,150)
Realised losses on investments (5,953,360) (2,924,232)
Cost at end of the period 198,305,470 222,889,855
Unrealised (losses) / gains on investments (2,800,279) 6,587,989
195,505,191 229,477,844
5. Net changes in fair value of financial assets at fair value through profit or loss
The net realised and unrealised investment gain or loss from trading in financial assets and financial liabilities shown in the Income
Statement for the period from 1 April 2008 to 30 September 2008 is analysed as follows:
For the six months For the six months ended 30
ended 30 September September 2007
2008
US$ US$
Movement in unrealised gains (9,254,482)
and losses on investments 2,135,041
Capital calls expenses (967,413) (1,180,954)
Realised losses on investments (5,953,360) -
Net (losses)/ gains on foreign (7,966,713) 2,081,154
exchange
(24,141,968) 3,035,241
6. Trade and other receivables
30 September 2008 31 March 2008
US$ US$
Due from brokers 12,076,954 969,609
Subscription paid in advance 5,000,000 -
Unrealised gain on forward foreign 1,592,189 -
exchange (Note 7)
Prepayments 133,599 110,782
Accrued interest 3,386 18,014
18,806,128 1,098,405
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
7. Trade and other payables
30 September 2008 31 March 2008
US$ US$
Management fee 297,425 320,902
Legal and professional fees 249,904 175,235
Printing and communication costs 147,444 103,458
Administration fee 9,915 10,698
Custody fee 9,370 10,209
Capital calls payable - 1,200,000
Repurchase of shares - 201,637
Unrealised loss on forward foreign exchange - 68,121
Sundry expenses 29,759 33,575
743,817 2,123,835
At 30 September 2008, the Company had 16 outstanding forward foreign exchange contracts with
maturity dates of 12 December 2008 (31 March 2008: 1 forward foreign exchange contract with a maturity date of 4 April
2008):
30 September 2008 31 March 2008
US$ US$
Sold (U.S. Dollars) 139,100,000 150,200,000
Bought (Sterling) �75,690,385 at 1.9385 (140,692,189) (150,131,879)
(1,592,189) 68,121
8. Borrowings
The revolving loan facility with Bank of Scotland matured on 12 July 2007 and was fully repaid on that date.
9. Significant agreements and related parties
Investment management
The Company has appointed Bramdean Asset Management LLP as the Investment Manager to the Company. The Investment Manager is paid by the
Company a fee equal to one-twelfth of 1.5% per month of the net asset value of the Company (before deduction of any performance fee). The
fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears.
Total fees payable to the Investment Manager for the period from 1 April 2008 to 30 September 2008 amounted to US$1,910,049 (period from
1 April 2007 to 30 September 2007 - US$883,894) of which US$297,425 was outstanding at 30 September 2008 (31 March 2008 - US$320,902).
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
9. Significant agreements and related parties (continued)
Investment management (continued)
In addition, the Investment Manager is entitled to a performance fee of 10% with respect to each class of Shares based on the total
increase in the net asset value of the relevant class at the end of each performance period (period to 31 March each year). For a
performance fee to be paid, the Investment Manager must achieve returns in excess of a hurdle of 8% (subject to a high watermark). No
performance fee has been earned in the period from 1 April 2008 to 30 September 2008 (period from 1 April 2007 to 30 September 2007 - nil).
Administration
The Administrator is paid by the Company a fee not greater than 0.06% per annum of the net asset value of the Company, subject to a
minimum annual fee of �50,000.
Total fees payable to the Administrator for the period from 1 April 2008 to 30 September 2008 amounted to US$63,673 (period from 1 April
2007 to 30 September 2007 - US$29,465) of which US$9,915 was outstanding at 30 September 2008 (31 March 2008 - US$10,698).
Custody
The Custodian is paid by the Company a fee not greater than 0.06% per annum of the net asset value of the Company, subject to a minimum
annual fee of �10,000.
Total fees payable to the Custodian for the period from 1 April 2008 to 30 September 2008 amounted to US$60,611 (period from 1 April
2007 to 30 September 2007 - US$27,260) of which US$9,370 was outstanding at 30 September 2008 (31 March 2008 - US$10,209).
Transactions with Directors
The Chairman of the Board receives an annual fee of �75,000, the remaining four Directors each receive an annual fee of �27,000, with
the Chairman of the Audit Committee receiving an additional �5,000 per annum with effect from 1 April 2008. Directors' fees are paid
quarterly in advance. Total fees payable for the period from 1 April 2008 to 30 September 2008 amounted to US$187,694 (period from 1 April
2008 to - US$122, 324). No fees were outstanding at 30 September 2008. (31 March 2008 - nil).
As at 30 September 2008, the following Directors held a beneficial ownership of Shares representing the following percentage interest in
the Company's voting rights and net assets.
B. P. Larcombe 50,000 Sterling Shares 0.04%
M. P. S. Barton 10,000 Sterling Shares 0.01%
M. D. Buckley 100,000 U.S. Dollar Shares 0.04%
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
10. Financial risk management
The Company maintains positions in a variety of investees and forward currency contracts as determined by its investment management
strategy.
The investees' own investing activities expose the Company to various types of risks that are associated with the financial investments
and markets in which they invest. The significant types of financial risks to which the Company is exposed are market risk, credit risk and
liquidity risk.
Asset allocation is determined by the Company's Investment Manager who manages the allocation of assets to achieve the investment
objective as detailed in the Summary Information on page 29. Achievement of the investment objective involves taking risks. The Investment
Manager exercises judgement based on analysis, research and risk management techniques when making investment decisions. Divergence from
target asset allocations and the composition of the portfolio is monitored by the Board.
The nature and extent of the financial investments outstanding at the year end date and risk management policies employed by the Company
are detailed below:
a) Capital management policies and procedures
The Company's capital management objectives are:
* to ensure the Company's ability to continue as a going concern
* to provide an adequate return to shareholders
The Company seeks to achieve these objectives by adopting the investment objective set out on page 29.
b) Market price risk
The potential for changes in the fair value of the Company's investment portfolio is referred to as market price risk. Commonly used
categories of market price risk include currency risk, interest rate risk and other price risk.
* Currency risk may result from exposure to changes in spot prices, forward prices and volatilities of currency exchange rates.
* Interest rate risk may result from exposure to changes in the level, slope and curvature of the various yield curves, the
volatility of interest rates and credit spreads.
* Other price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices other than
those arising from currency risk or interest rate risk.
i) Market price risk management
The Company's unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the
investment securities. The Investment Manager provides the Company with investment recommendations that are consistent with the Company's
objectives.
The valuation method of these investments is described within the accounting policies. The nature of some of the Company's investments,
which are unquoted investments in private equity funds, means that the investments are valued by the Investment Manager on behalf of the
Company after due consideration of the most recent available information from the underlying investments as adjusted where relevant by the
Directors.
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
10. Financial risk management (continued)
i) Market price risk management (continued)
Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices. The investments of the Company are subject to normal market fluctuations and the risks inherent with investment in financial
markets. The maximum risk resulting from financial instruments held by the Company is determined by the fair value of the financial
instruments. The Investment Manager moderates this risk through careful selection of funds managed by experienced fund managers, which meet
the investment objective outlined on page 29; the Company's market price risk is managed through diversification of the investment
portfolio. Through a variety of analytical techniques, the Investment Manager monitors, on a daily basis, the Company's overall market
positions, as well as its exposure to market price risk.
ii) Currency risk
The Company has assets and liabilities denominated in currencies other than U.S. Dollars, its functional currency. The Company is
therefore exposed to currency risk, as the value of the assets and liabilities denominated in other currencies fluctuates due to changes in
exchange rates. The Company has implemented currency hedging using a third-party manager in an attempt to reduce the impact of currency
fluctuations. The major foreign currency exposures of the Sterling Shares and of the U.S. Dollar Shares are managed through the use of
forward foreign exchange contracts, although there can be no guarantee that the management of currency risk and exposure will be successful.
Different hedge levels are implemented for the U.S. Dollar Share class and the Sterling Share class based on the perceived currency risk,
and the hedge levels may be changed upon discussions between the third-party manager and the Investment Manager. The expense or benefit of
such activity is allocated at the Share class level to reflect the different impact hedging has on each Share class. As a result, the net asset value of the different classes of Share may differ over
time as the differing gains and losses realised on the hedging contracts are applied to the relevant class of Share.
The table below summarises the Company's exposure to currency risks, expressed in U.S. Dollars, at the period / year end:
Assets US$ GBP EUR Total
Financial assets at fair value 176,606,360 3,170,419 15,728,412 195,505,191
through profit or loss
Cash and short term notes 15,638,090 266,553 - 15,904,643
Other assets and liabilities 16,677,649 1,384,662 - 18,062,311
Total at 30 September 2008 208,922,099 4,821,634 15,728,412 229,472,145
Assets US$ GBP EUR Total
Financial assets at fair value 206,130,733 4,372,646 18,974,465 229,477,844
through profit or loss
Cash and short term notes 15,326,335 12,622,554 (398) 27,948,491
Other assets and liabilities (963,321) (62,109) - (1,025,430)
Total at 31 March 2008 220,493,747 16,933,091 18,974,067 256,400,905
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
10. Financial risk management (continued)
iii) Interest rate risk
The Company is exposed to interest rate risk. The Company invests primarily in private equity and hedge funds that are
non-interest-bearing investments, primarily subject to market price risk. Investees may invest in fixed income securities and interest rate
swap contracts; interest receivable on bank deposits or payable on loan positions will be affected by fluctuations in interest rates.
Changes to prevailing interest rates or changes in expectations of future rates may result in an increase or decrease in the value of the
securities held. In general, if interest rates rise, the value of fixed income securities will decline. A decline in interest rates will, in
general, have the opposite effect.
The majority of the Company's financial assets and liabilities are non-interest-bearing. As a result, the Company is not, in that
respect, subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and
cash equivalents are invested at short-term market interest rates. As at 30 September 2008 the Company's interest bearing assets, all of
which receive or pay interest at a variable rate, were as follows:
30 September 2008 31 March 2008
US$ US$
Cash and cash equivalents 15,904,643 27,948,491
iv) Other price risk
Other price risk is the risk that the value of the investees' financial investments will fluctuate as a result of changes in market
prices, other than those arising from currency risk or interest rate risk whether caused by factors specific to an individual investment,
its issuer or any factor affecting financial investments traded in the market.
As the Company's investments are carried at fair value with fair value changes recognised in the Income Statement, all changes in market
conditions will directly affect the overall net asset value.
The investments are valued based on the latest available unaudited price of such shares or interests as determined by the administrator
or general partner of the investees. Furthermore, valuations received from the administrator or general partner of the investees may be
estimates and such values can generally be used to calculate the net asset value of the Company, however, such estimates should not be
construed as a representation by the Company or the administrator or general partner of the investees as to the expected future value of
such shares or interests. Such estimates provided by the administrators or general partners of the investees may be subject to subsequent
revisions which may not be restated for the purpose of the Company's final month-end net asset value.
Currency, interest rate and other price risks are managed by the Investment Manager as part of the integrated market price risk
management processes.
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
10. Financial risk management (continued)
c) Credit risk
The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The
Investment Manager has adopted procedures to reduce credit risk related to the Company's dealings with counterparties and investees. Before
transacting with any counterparty or investee, the Investment Manager or its affiliates evaluate both creditworthiness and reputation by
conducting a credit analysis of the party, its business and its reputation. The credit risk of approved counterparties and investees is then
monitored on an ongoing basis, including periodic reviews of financial statements and interim financial reports as needed. Impairment
provisions are provided for losses, if any, that have been incurred by the balance sheet date.
The risk of default is considered to be limited as presently there are no investments in the portfolio where amounts are paid to or
received from parties, other than directly with the actual investment fund via the call notices received pursuant to the subscription
agreements.
d) Liquidity risk
The Company's financial instruments include investments in unlisted securities, which are not traded in an organised public market and
may generally be illiquid. The Company's financial instruments also include investments in hedge funds. In light of the current economic
uncertainty, some hedge funds have increased the restrictions placed on investors limiting both the timing and the proportion of assets that
investors may redeem. As a result, the Company may not be able to liquidate quickly its investments in these instruments at an amount close
to fair value in order to respond to its liquidity requirements or to specific events.
The Company's outstanding investment commitments are detailed in Note 12. When an over-commitment approach is followed, the aggregate
amount of capital committed by the Company to investments at any given time may exceed the aggregate amount of cash that the Company has
available for immediate investment, so there is a risk that the Company might not be able to meet capital calls when they fall due. To
manage this risk, the Company holds an appropriate amount of its assets in cash and cash equivalents together with a selection of readily
realisable investments. In planning the Company's commitments, the Investment Manager takes into account expected cash flows to and from the
portfolio of fund interests and, from time to time, may use borrowings to meet draw downs; these expected cash flows are monitored against
actual draw downs and distributions on a monthly basis to assess the level of additional commitments that can be made and how much cash
needs to be kept on hand. The Directors have resolved that the Company may borrow up to 25% of its net asset value for short-term or long-term purposes, although there is a risk that the Company
might not be able to obtain a loan facility in the current economic environment.
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
11. Share capital and share premium
30 September 31 March
2008 2008
Number of shares
Management shares
Authorised: 10,000 Shares of �1.00 each
Issued: Management Shares of �1.00 each 2 2
Shares
Authorised: unlimited number of Shares of no par value
Issued: Sterling Shares 97,701,842 130,017,311
Issued: U.S. Dollar Shares 65,988,142 1,785,000
On 28 May 2008, certain holders of Shares in the Company owning Sterling Shares elected to switch into U.S. Dollar Shares on
the basis of the net asset values of the Company's Shares as at 30 April 2008. As a result of the switch 32,055,469 Sterling
Shares were converted into 64,203,142 U.S. Dollar Shares.
During the period, the Company repurchased 260,000 of its Sterling Shares for $578,641.
Issued and fully paid 30 September 31 March
2008 2008
US$ US$
Management Shares of �1.00 each 4 4
4 4
Issued and fully paid
Sterling Shares of no par value 193,407,596 257,440,749
U.S. Dollar Shares of no par value 65,200,543 1,746,031
258,608,139 259,186,780
The authorised share capital of the Company on incorporation was �10,000 divided into 10,000 shares of �1.00 each. On 31 May 2007 a
special resolution was passed by the Company to increase the share capital to an unlimited number of participating shares of no par value
("Shares"), which, upon issue, the Directors were able to designate as Sterling Shares, U.S. Dollar Shares or otherwise as determined by the
directors at the time of issue, and 10,000 Management Shares of �1.00 each.
The Shares were issued on 4 July 2007 as a result of the Company announcing the placing and offer for subscription of its Shares on 6
June 2007.
The rights attaching to the Ordinary Shares are as follows:
a) On 30 April and 31 October of each year a holder of Shares may elect to convert some or all of their Shares of one currency class
into Shares of another currency class.
11. Share capital and share premium (continued)
b) Subject to any restrictions set out in the Company's articles of association, on a poll each U.S. Dollar Share carries one vote per
Share and each Sterling Share carries 2.0194 votes per Share at a general meeting.
c) The capital and assets of the Company shall on a winding-up be divided (following payment to the holders of Management Shares of sums
up to the nominal value paid up thereon) amongst the holders of Shares on the basis of the capital and assets attributable to the respective
classes of Shares at the date of winding-up and amongst the holders of Shares of a particular class pro rata according to their holdings of
Shares in that class
.
12. Commitments
The table below summarises commitments to the underlying investments of the Company.
Total Commitments Outstanding
Commitments
Currency US$ Currency US$
AIG Brazil Special Situations 10,000,000 8,228,240
II L.P.
Coller International Partners 15,000,000 11,013,848
V L.P.
DFJ Athena L.P. 10,000,000 6,839,272
Goldman Sachs Capital Partners 15,000,000 9,627,922
VI L.P.
Greenpark International EUR14,600,000 20,440,000 EUR5,548,134 7,767,387
Investors III L.P.
H.I.G. Bayside Debt & LBO Fund 15,000,000 14,825,000
II L.P.
Lehman Bros Venture Partners V 12,500,000 9,741,942
L.P.
LimeTree Emerging Beachfront 5,000,000 4,955,378
Land Investment Fund II L.P.
MatlinPatterson Global 10,000,000 5,750,000
Opportunities Partners III
L.P.
Oaktree OCM Opportunities Fund 15,000,000 10,500,000
VII b L.P.
Pine Brook Capital Partners 10,000,000 8,551,725
L.P.
Rho Ventures VI L.P. 10,000,000 9,550,000
Silver Lake Partners III L.P. 15,000,000 12,274,861
SVG Strategic Recovery Fund II �7,500,000 13,350,000 �5,100,972 9,079,731
L.P.
Terra Firma Capital Partners EUR15,000,000 21,000,000 EUR8,050,711 11,270,995
III L.P.
Thoma Bravo Fund IX L.P. 10,000,000 9,050,000
Thomas H Lee Parallel Fund VI 15,000,000 6,146,935
L.P.
At 30 September 2008 222,290,000 155,173,236
Notes to the Condensed Half-Yearly Financial Statements (continued)
for the period from 1 April 2008 to 30 September 2008
13. Net Asset Value
The net asset value of each Sterling Share is determined by dividing the net assets of the Company attributable to the Sterling Shares
of �95,020,965 (US$169,365,368) by 97,701,842, being the number of Sterling Shares in issue at the period end.
The net asset value of each U.S. Dollar Share is determined by dividing the net assets of the Company attributable to the U.S. Dollar
Shares of US$60,106,777 by 65,988,142, being the number of U.S. Dollar shares in issue at the period end.
14. Ultimate controlling party
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling
party.
15. Reserves
31 March
30 September 2008
2008
US$ US$
Opening reserves (2,785,879) (517,518)
Change in net assets from operations (26,350,119) (2,268,361)
Closing reserves (29,135,998) (2,785,879)
Reserves attributable to:
Management Shares - -
Sterling Shares (26,173,571) (2,786,010)
U.S. Dollar Shares (2,962,427) 131
(29,135,998) (2,785,879)
16. Exchange rates
As at 30 September 2008 and 31 March 2008, the exchange rates used (against US$) in the preparation of these financial statements are as
follows:
30 September 31 March
2008 2008
US$ US$
Sterling 1.7824 1.9875
Euro 1.4047 1.5846
Notes to the Condensed Half-Yearly Financial Statements (Continued)
for the period from 1 April 2008 to 30 September 2008
17. Business segments and geographical analysis
For management purposes the Company has one sole principal activity and that is to make investments. The investment objective of the
Company is to generate long-term capital gains by investing in a diversified portfolio of private equity funds, hedge funds and other
specialty funds. As this is the primary and sole business activity, the results disclosed in the balance sheet and income statement are
sufficient to satisfy the reporting requirements of IAS 14.
The geographical allocation of Investments at 30 September 2008 was as follows:
Global 18.7%
North America 51.1%
Europe 24.7%
Asia & Other 5.5%
The geographical allocation of Investments at 31 March 2008 was as follows:
Global 38.5%
North America 30.9%
Europe 26.4%
Asia & Other 4.2%
18. Comparative figures - Share issue costs
The comparative figure for share issue costs incurred in the period from 1 April 2007 to 30 September 2007 is US$5,789,235. The
Condensed Half-Yearly Financial Statements for the period from 1 April 2007 to 30 September 2007 state these costs as US$7,127,685. The
difference relates to US$1,338,540 of costs that were moved from the share premium account to the income statement following the 31 March
2008 audit. This adjustment had no impact on the net asset value of the Company.
19. Event after the reporting period - Share conversion
On 27 October 2008, certain holders of Shares in the Company owning Sterling Shares elected to switch into U.S. Dollar Shares and
certain holders Shares in the Company owning U.S. Dollar Shares elected to switch into Sterling Shares on the basis of the net asset value
of the Company's Shares as at 31 October 2008. As a result of the switch 5,671,846 Sterling Shares have been converted into U.S. Dollar
Shares; 204,357 U.S. Dollar Shares have been converted into Sterling Shares.
As at 30 September 2008
Nominal Fair Value % of
Holding US$ NAV
Investments (Cost US$131,995,799)
Hedge Funds
Aarkad Plc 5,152,395 8,179,942 3.6
Alydar Fund Ltd. 81,794 9,541,434 4.2
Arcas MAC 79 Ltd. 2,731 3,417,078 1.5
Atticus European Fund Ltd. Class A 4,966 1,400,611 0.6
Atticus European Fund Ltd. Class M 1,131 276,202 0.1
D.E. Shaw Oculus International 8,500,000 10,450,325 4.6
Members Interest
Deephaven Global Multi-Strategy Fund 2,170 7,446,168 3.2
Ltd.
Defender Ltd. 10,136 11,228,169 4.9
Evergreen Mac Ltd. 3,042 2,961,188 1.3
Hard Assets 2X Fund Ltd. 5,403 8,664,607 3.8
Kaiser Trading Diversified 2X 2,944 3,840,936 1.7
Segregated Portfolio
Kei Ltd. 2,106 4,030,863 1.8
King Street Capital Ltd. Class A, 14,637 5,425,444 2.4
Series 1
King Street Capital Ltd. Class S, 1,069 105,178 0.0
Series 9
King Street Capital Ltd. Class S, 15 1,478 0.0
Series 10
King Street Capital Ltd. Class S, 11 1,064 0.0
Series 11
King Street Capital Ltd. Class S, 307 29,571 0.0
Series 12
Lansdowne UK Equity Fund 25,927 8,189,939 3.6
5,017 6,705,421 2.9
Oak Hill Credit Alpha Fund
(Offshore) Ltd.
Paulson Advantage Plus Ltd. 26,339 9,962,991 4.3
Renaissance Institutional Futures 7,065,443 6,753,341 2.9
Fund LLC
Rye Select Broad Market XL Portfolio 7,673 9,841,955 4.3
Ltd.
7,739 6,968,430 3.0
York Asian Opportunities Unit Trust
1,012,343 14,181,106 6.2
York European Opportunities Unit
Trust
139,603,441 60.9
Investment Called/ Fair Value % of
Cost US$ NAV
Investments (Cost US$ unless stated
US$66,309,671)
Private Equity and Specialty
AIG Brazil Special Situations 1,651,584 1,663,087 0.7
Fund II L.P.
Coller International Partners 3,337,500 3,791,016 1.7
V L.P.
DFJ Athena L.P. 3,425,000 2,802,192 1.2
Goldman Sachs Capital Partners 5,850,000 4,834,870 2.1
VI L.P.
Greenpark International EUR8,107,069 11,387,613 5.0
Investors III L.P.
HIG Bayside Debt & LBO Fund II 175,000 175,000 0.1
L.P.
Lehman Brothers Venture 2,566,894 2,624,814 1.1
Partners V L.P.
LimeTree Emerging Beachfront 27,233 27,233 0.0
Land Investment Fund II L.P.
Matlin Patterson Global 4,158,865 4,146,871 1.8
Opportunities Partners III
L.P.
Oaktree OCM Opportunities Fund 4,500,000 3,957,129 1.7
VII b L.P.
Pine Brook Capital Partners 1,437,273 1,559,723 0.7
L.P.
Rho Ventures VI L.P. 450,000 450,000 0.2
Silver Lake Partners III L.P. 2,614,559 2,174,619 0.9
SVG Strategic Recovery Fund II 3,170,419 1.4
L.P. �2,326,486
Terra Firma Capital Partners EUR6,180,603 4,340,799 1.9
III L.P.
Thoma Bravo Fund IX L.P. 854,229 854,229 0.4
Thomas H. Lee Parallel Fund VI 7,270,504 7,942,136 3.5
L.P.
55,901,750
24.4
Total Investments 195,505,191 85.3
Short Term Notes
Bank of Scotland 4,001,366 4,001,366 1.7
BNP 9,514,783 9,514,783 4.1
13,516,149 5.8
Cash 2,388,494 1.0
Other assets less liabilities 18,062,311 7.9
20,450,805 8.9
TOTAL 229,472,145 100.0
This information is provided by RNS
The company news service from the London Stock Exchange
END
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