RNS Number:2270O
Bramdean Alternatives Limited
18 February 2008
Bramdean Alternatives Limited
18th February 2008
Interim Management Statement
For the period 1st September 2007 to 31st December 2007
This Interim Management Statement relates to the period from
1st September 2007 to 31st December 2007 and contains information
that covers that period, unless otherwise stated. Where comparative
financial data is given, it relates to the period ended 31st July 2007.
Company Overview
Bramdean Alternatives Limited (the "Company") is a Guernsey-based Investment
Company listed on the London Stock Exchange. The Company's investment objective
is to generate long-term capital gains. The Company has appointed Bramdean Asset
Management LLP ("BAM") as its investment manager. BAM is responsible for the
management of the Company's assets, subject to the overall supervision of the
Company's Board.
The Company invests in a diversified portfolio of private equity funds, hedge
funds and other specialty funds and may additionally hold direct holdings in
unquoted companies and quoted securities. The portfolio of investments is
intended to be diversified by country, industry sector, investment stage and
size of investment, as well as by strategy, with the aim of producing absolute
returns.
KEY DATA OVERVIEW
31/12/07
Sterling share class
31/12/07 31/07/07 Relative performance
Net Asset Value 99.41 pence 96.79 pence + 2.7%
Share price 92.50 pence 103.00 pence - 10.2%
31/12/07
US Dollar share class
31/12/07 31/07/07 Relative performance
Net Asset Value US$ 0.9898 US$ 0.9985 - 0.9%
Share price US$ 1.02 US$ 1.02 Flat
31/12/07
Financial Position
31/12/07 31/07/07 Relative performance
Total common assets US$ 265,109,945 $ 265,106,798* Flat
Net Asset Value US$ 259,310,962 $ 257,755,023 +0.6%
* Please note that the total assets reported in the last Interim Management
Statement were the total assets for portfolio valuation, not the total common
assets.
Share prices shown are official Stock Exchange closing
Sources:
London Stock Exchange
Company's Administrator
Bramdean Asset Management LLP
KEY FACTS
MANAGER BRAMDEAN ASSET MANAGEMENT LLP
TOTAL ISSUED SHARE CAPITAL �131 million
MANAGEMENT FEE 1.5%
PERFORMANCE FEE 10% subject to an 8% return with a high watermark*
*Please visit Shareholder Information at www.bramdeanalternatives.com for
further details.
Material transactions
Changes to share capital
Ordinary shares issued at �1.00 and US$1.00,
the number of shares in issue as at
31st December 2007:
130,142,311 Sterling shares
1,785,000 US$ shares
No shares were bought into or issued from Treasury during the period.
Portfolio synopsis
The Company was 100% invested at the quarter end. It had made commitments to
fourteen underlying private equity funds and underlying specialty funds
amounting to approximately US$195.7 million and the total amount that had been
drawn-down on the commitments made was approximately US$37.3 million. At the
quarter end, the majority of the Company's assets were invested in hedge funds.
Although November was a difficult month for hedge funds, the portfolio did well
overall during the period.
All of the Company's assets were invested by the end of December after
draw-downs of approximately US$6 million reduced the Company's cash holding to
zero. The Company received distributions of US$435,114 during the quarter.
MARKET REPORT
The crisis in the credit markets continued to dominate during the fourth quarter
of 2007. Although on some measures (such as LIBOR spreads over central bank
rates), credit markets appeared to be normalising, concerns grew over the impact
of the credit crunch on the U.S. and global economies and also on major
financial services companies.
Equity markets fell further during the period, although there was a rally
towards the year-end. The FTSE All World U.S. index fell 3.1% (in Dollar terms),
the FTSE All World Europe ex-UK index fell by 1.9% (in local currency) and the
FTSE All Share index fell by 0.4%. Japan was by far the worst performing of the
major markets, falling 8.3% in local currency terms. The previously unaffected
emerging markets also weakened with the FTSE All World Pacific Basin (ex-Japan)
falling 1.6% (in local currency). With equities weakening and a continual stream
of poor economic news, market expectations of significant interest rate
reductions continued to drive bond markets. The Federal Reserve continued to cut
rates during the quarter and has reduced the overnight rate by 1% since
mid-September. In the UK, the Bank of England cut base rates by 25 basis points.
The FTSE Government All Stocks was typical of bond indices, rising 4.4% during
the quarter. In the U.S., benchmark 10-year Treasury yields fell sharply from
4.2% to 3.9%.
The belief by the markets that the credit crunch was largely a manageable
correction in one part of the financial system came under increasing pressure
during the quarter. Economic data in the U.S. pointed to a significant slowdown
in activity. Retail sales were generally disappointing and housing data very
weak. There were increasing signs that credit issues were not just restricted to
sub-prime mortgages and their related derivatives, with banks reporting signs of
deterioration in credit card portfolios.
The major U.S. investment banks, which had already reported very significant
write-downs relating to sub-prime credit, again became a focus for concern.
Several banks had to revise upwards previous estimates of their losses and there
were further management changes. The extent of the write-offs led several major
institutions to seek new equity capital to shore up their balance sheets. With
mainstream equity fundraising almost impossible, sovereign wealth funds became
the source for such capital. ADIA, the Abu Dhabi government's investment
vehicle, took a 4.9% stake in Citigroup and UBS received US$17bn of new equity
in mandatory convertible bonds from the Government of Singapore and an unnamed
Saudi investor. These transactions were followed by a US$5bn investment in
Morgan Stanley by the China Investment Corporation and a US$4.4bn capital
injection by Temasek into Merrill Lynch.
In late December credit concerns spread to include the financial position of the
U.S. bond insurance industry which provides default hedging to institutions
owning a range of
corporate and municipal bonds. The bond insurers collectively insure trillions
of Dollars of bonds and markets feared that the failure of these institutions
could lead to a further worsening in credit conditions in the U.S. The problems
in the bond insurance sector are the first example of material institutional
counterparty risk since the credit crunch began.
Despite weak economic news, the oil price continued to rise sharply during the
fourth quarter with the price of three month Brent increasing from US$75 to
US$89 / barrel. Other commodity prices generally weakened during the period but
remained at elevated levels. Since the end of the year, oil has risen further
(touching intra-day highs above US$100 / barrel for some grades) but has since
fallen sharply as economic concerns have begun to dominate.
The instability in financial markets inevitably impacted M&A and buy-out
activity. A significant number of previously announced acquisitions have been
aborted since the summer. Mergermarket (a U.S. research company) estimates
around US$45bn of deals were aborted in the second half of 2007. Despite some
high profile failures, however, total M&A volumes remained extremely high with
the possible acquisition of Rio Tinto by BHP Billiton ranking as the second
largest deal of all time. In the fourth quarter as a whole, financial acquirers
only accounted for 9% of announced deals globally, the lowest proportion since
2004 and a significant fall from the 20% seen for the year as a whole.
Debt issuance remained subdued during the quarter. In Europe, the value of new
syndicated loans fell substantially compared to both the second quarter (-36%)
and the same period in 2006 (-37%). Syndicated borrowing by private equity firms
in Europe collapsed from US$62.7bn in the third quarter to US$15bn in the fourth
quarter. Global asset backed security issuance in the fourth quarter was
US$110bn compared to US$620bn in the fourth quarter of 2006. In total, global
debt underwriting fell by 50% year on year. All major central bank surveys
showed a significant tightening in credit criteria.
Hedge fund returns held up relatively well with all the major sectors of the CS/
Tremont index showing positive returns during the period. Overall the CS/Tremont
broad index produced a return of 2.0% (in Dollars) during Q4 with the best
performing strategy being dedicated short (+6.9%) and the worst being
convertible arbitrage (+0.5%). These positive returns were achieved with
significant volatility however. In November most hedge fund indices showed
declines of 1-2%, making November one of the worst months in the last ten years.
As would be expected, given the very high volatility in most markets, currencies
also saw significant movements during the quarter. The U.S. Dollar dropped
sharply against Sterling in early November as pessimism relating to the U.S.
economy increased, followed by a steeper rise in the U.S. Dollar against
Sterling in late December as indications of a slow down in the UK economy
increased.
MATERIAL EVENTS
The Company made new commitments to four additional private equity and specialty
funds during the period:
Oaktree OCM Opportunity Fund VIIb L.P., a speciality fund to which the
Company committed US$15 million on 19th September 2007. This is a distressed
debt manager and is a follow-up fund that is expected to take advantage of
distressed opportunities that develop.
Pine Brook Capital Partners L.P., a specialty fund to which the Company
committed US$10 million on 1st October 2007. This is a first-time fund whose
manager has an excellent track record. The fund specialises in growth equity
investments in the energy and financial services sectors.
DFJ Athena L.P. is a private equity fund to which the Company committed
US$10 million on 20th December 2007. This is a country fund investing in Korean
venture capital.
Rho Ventures VI L.P. is a private equity fund to which the Company committed
US$10 million on 21st December 2007. This is a U.S. venture capital fund
investing in life sciences and technology.
PORTFOLIO
Top Ten Holdings as at 31st December 2007
Third Avenue Value Equity Offshore Fund Limited 8.9%
Oldfield Overstone Global Equity Fund 6.7%
Platinum Grove Contingent Capital Offshore Fund 6.5%
York European Opportunities Unit Trust 5.7%
Enso Global Equities Fund Ltd. 5.5%
Brencourt Enhanced Multi-Strategy International Ltd. 4.2%
Reliance Management Defender Ltd. 4.1%
Paulson Advantage Plus Ltd. 3.8%
D.E. Shaw Oculus International Members Interest 3.7%
York Asian Opportunities Unit Trust 3.5%
Geographical analysis as at 31st December 2007
Global 47.4%
North America 24.4%
Europe 22.3%
Asia and other 5.9%
Asset Allocation Summary as at 31st December 2007
Transitional portfolio1 53.9%
Strategic Hedge Funds portfolio(2) 32.4%
Private Equity Funds portfolio 11.3%
Specialty Funds portfolio 2.4%
Cash 0%
1The Company seeks to avoid return dilution caused by holding amounts that are
not committed or are committed, but not yet drawn-down, on both underlying
private equity funds and underlying specialty funds by investing such amounts in
a range of transitional investments, which may include equity hedge, senior
debt, mezzanine and market neutral funds.
2The part of the Company's portfolio which is managed by RMF Investment
Management - Nassau branch.
PORTFOLIO COMMENTARY
Shares in the Company have now been trading for six months. The Company's
admission to the Official List in July 2007 coincided with considerable market
turbulence which has resulted in some share price volatility that has been
compounded by trading illiquidity in the shares.
As at 31st December, the Net Asset Values per share were 99.41 pence for the
Sterling share class and US$0.9898 for the U.S. Dollar share class. This
represents a 2.7% increase and 0.9% fall in the respective initial NAVs that
were priced at 31st July 2007. At the quarter end, the Sterling shares traded at
a 6.9% discount to the December NAV while the U.S. Dollar shares traded at a 3%
premium to NAV.
The majority of the Transitional and Strategic Hedge Funds portfolios were
subscribed to at the beginning of August. Subscription to Atticus Europe Ltd. ("
Atticus"), part of the Strategic Hedge Funds portfolio, was completed at the
beginning of October. The Company also secured an allocation to Lansdowne UK
Equity Fund ("Lansdowne") in the Strategic Hedge Funds portfolio and effectively
replaced its holding in Ivory Offshore Flagship Fund ("Ivory") with Lansdowne.
As Lansdowne's equity beta was higher than Ivory's, a small position was taken
in a short-only manager, Arcas MAC 79 Ltd ("Arcas"). The Company is now fully
invested after the completion of these subscriptions, and as at 31st December,
the portfolio held no cash.
During the quarter, the Company reduced its holdings in long-only managers,
Third Avenue and Oldfield, by over half to effectively lower the Company's beta
exposure and raise liquidity to meet capital calls on its private equity
commitments. The cash proceeds from the redemptions have mostly been received in
January.
The Company's returns in October (1.60% in the Sterling share class and 2.47% in
the U.S. Dollar share class) benefited from the recovery in financial markets
that began in mid-September as a result of reductions in interest rates.
November returns (-0.67% in the Sterling share class and -1.11% in the U.S.
Dollar share class) were negatively impacted by the general global decline in
equity prices, increase in volatility, and widening of credit spreads caused by
renewed worries about the effects of the sub-prime and mortgage credit crisis in
the U.S. on global economic growth and financial stability.
However, the portfolio was intentionally structured to have minimal direct long
exposure to sub-prime debt at inception. Indeed, one of the portfolio holdings,
Paulson Advantage Plus Ltd. ("Paulson") made substantial gains shorting
sub-prime debt, and the Company benefited from its holding in Paulson.
The Company's underlying performance in December was 1.35% for the Sterling
share class and 0.21% for the U.S. Dollar share class. The Company benefited
from its managers' adjustments to more defensive portfolios and their increasing
willingness to take positions that are likely to benefit from a general
deterioration of economic conditions.
Hedging activity
Since the beginning of October until the quarter end, the Company has maintained
a hedge ratio of 75% on its U.S. Dollar exposure using a monthly rolling
currency forward with Bank of Scotland (this hedge ratio increased from the 70%
ratio adopted in August and September). Fluctuations in currencies account for
the differences in the monthly performance figures between the Sterling and U.S.
Dollar share classes.
At the beginning of January, the hedge ratio was taken back to 70%.
Private Equity and Specialty Portfolio
The portfolio has allocations to two secondaries funds, eight private equity and
venture capital funds and four specialty funds.
The purpose of the two secondaries funds, both 2006 vintages is to provide
vintage year diversification (their strategy is to acquire primarily pre-2006
funds across a range of vintages) for the Company's private equity portfolio.
They are also expected to provide distributions to fund future private equity
and specialty fund draw-downs. Both funds have had one distribution, and these
account for all the private equity and speciality distributions to the Company
to date.
The 2006 vintage private equity funds, together with Silver Lake, are all
large-cap funds which made substantial investments prior to the July-August
credit crisis. 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. The credit crisis has deeply affected the ability of managers to obtain
financing on attractive terms. One manager, Thomas H. Lee, has stated that it
does not expect financing terms to return to reasonable levels until 2009.
Goldman Sachs Capital Partners invests in mid-cap transactions globally, while
AIG Brazil invests in mid-cap transactions in Latin America. The mid-cap private
equity market has remained robust subsequent to the credit crisis, as it is not
as dependent on leverage to generate returns as the large-cap sector. These
managers expect to continue to make draw-downs as originally planned.
MatlinPatterson and Oaktree's role in the Company's portfolio is to provide a
counterbalance to the private equity portfolio, as they seek to achieve their
best returns in more challenging economic environments. Pine Brook, which
focuses on the energy and financial services sectors, provides the Company with
exposure to the energy commodities boom as well as potentially taking advantage
of the distressed environment in financial services to acquire assets cheaply.
The Company has also increased its exposure to venture capital and will continue
to do so through investment with top-tier firms, as the Company believes that
venture capital investment can provide diversification for the portfolio and
potentially significant returns going forward.
Transitional Portfolio
Our transitional portfolio is designed to reflect private equity type
characteristics while the commitments to our private equity funds are awaiting
capital calls. It is also structured to preserve that capital over the
medium-term and to be as liquid as possible so that the Company can meet its
capital calls. There are two parts of the investment strategy within the
transitional portfolio - the first is made up of investments in specialist
global equity managers, long/short equity and event-driven managers, as these
classes demonstrate the most similar characteristics to private equity. The
second strategy is to reduce exposure to market risk through investment in
market neutral and relative value funds.
The Company may seek to implement portfolio protection through the use of
derivatives from time to time for some portion of the transitional portfolio,
though the Company has not used derivatives for this purpose to date. The
transitional portfolio's proximity to private equity means that those
investments in equity-correlated assets will not perform well during short-term
equity market downturns; however, these investments are counter-balanced by
investments in market neutral funds.
In total, the transitional portfolio currently consists of 11 funds. Over the
month of October, the transitional portfolio recorded a gain of 2.3%. The
portfolio benefited from the recovery in the equity markets; this reflected in
the performance of some of its long-only and long/short funds, namely Third
Avenue, Oldfield, and York Asian, as well as Brencourt, an event-driven fund,
and Enso, a low beta equity fund. Renaissance Institutional Equities Fund ("RIEF
") was the only negative performer in the month.
Over the month of November, the transitional portfolio recorded a loss of 2.1%.
The portfolio benefited from having a large cash holding as well as from its
holding in Platinum Grove, Aarkad, and Defender. The largest detractors were
Brencourt and the long equity-biased Oldfield, Third Avenue, and York Asian,
which were all affected by the downturn in equity markets.
In December, the transitional portfolio recorded a gain of 0.3%. Platinum Grove
and Aarkad continued to generate stable returns, while the portfolio also
benefited from positive returns from Enso and York European. RIEF was the
largest detractor in the month, as its trading system continued to have
difficulty coping with negative sentiment in the equities market.
At the end of November, the decision was made to reduce the Company's allocation
to Third Avenue and Oldfield at the next possible dealing day, which was 31st
December. This decision was in accordance with the strategy to use the
transitional portfolio to fund the Company's private equity draw-downs and also
reflected a medium-term view that conditions for equities in many markets would
continue to deteriorate. These transactions were completed and the money
redeemed in cash into the Company's account in January.
Strategic Hedge Funds Portfolio
December saw a continuation of the turmoil experienced in November. However, the
portfolio held up well as all styles, with the exception of relative value,
posted gains.
Portfolio Highlights
- Equity Hedged - A good performance by one of our European managers helped to
bolster returns. Financial shorts continued to help the manager, as did a long
position in a stock which rose 15% on the announcement of a joint venture. Our
short seller continued to perform well, with the largest returns accruing from
short positions in financials and consumer discretionary sectors.
- Event Driven - Special situations managers did well in highly volatile equity
markets, with both managers contributing positively. Further bad news in the
financial sector regarding write-offs, combined with a smaller than expected
U.S. rate cut, depressed financial stocks. This benefited our managers with
short financials trades. A distressed debt manager further contributed to
performance due to its short credit bias.
- Global Macro - Global macro posted the largest profit for December. The strong
performance was underpinned by gains from our global trader, where shorts in the
British pound and a long bias to UK Gilts generated handsome profits. Rising
commodity shares was also beneficial to the performance of our commodity
manager. This sector shrugged off the general market malaise to post a gain over
the month.
- Managed Futures - The style posted a good return for December rounding off an
impressive year. Our multi-strategy manager recorded solid gains, with both
bonds and currency positions doing well. A systematic short-term trader profited
from the U.S. Dollar's mid-month volatility on strong U.S. consumer prices and
industrial production data.
- Relative Value - December was a difficult month, as relative value
relationships drifted apart and there was a general lack of liquidity in
markets. Due to a shortage of trading opportunities, our derivative arbitrage
manager was only able to utilise one third of available capital. The manager
posted a small loss for the month, as interest income from the capital held in
cash was not sufficient to offset leverage costs. Our multi-strategy manager
also posted a small loss, as none of its underlying strategies contributed
significantly to performance.
OUTLOOK
Given the gyrations that we saw in world markets during the second half of 2007,
it has been pleasing to report such a strong performance from our Strategic
Hedge Funds portfolio since inception and in the final quarter. The first few
weeks of 2008 have seen the volatility across markets increase further, U.S.
interest rates cut by 75 basis points and commodity prices falling. The extreme
nature of these events will present challenges, but also opportunities, for our
managers and while we expect a greater variation in returns in the near-term, we
believe that the portfolio is well placed to weather the storm. Following a
number of redemptions, the portfolio's cash position has risen sharply and is
anticipated to be approximately US$50 million by the middle of March, with
additional cash of approximately US$10 million to be received following
redemptions early in the second quarter.
Please note that up to date information on the Company, including its monthly
NAV and share prices, fact sheets, Prospectus and portfolio information can be
found at www.bramdeanalternatives.com or via a link from www.bramdean.com.
Capita Registrar's helpline is 0871 664 0300. (Calls cost 10 pence per minute
plus network extras).
Contact Investor Relations on 020 7052 9272, Amanda McCrystal, or
amccrystal@bramdean.com
By order of the Board, Royal Bank of Canada Offshore Fund Managers Ltd, Company
Secretary, for and on behalf of Bramdean Alternatives Limited.
Registered Office: Canada Court, Upland Road, St. Peter Port, Guernsey, GY1 3QE,
Channel Islands.
This Interim Management Statement has been produced solely to provide additional
information to shareholders of Bramdean Alternatives Ltd ("the Company") to meet
the relevant requirements of the U.K. Listing Authority's Disclosure and
Transparency Rules. It should not be relied upon by any other party for any
other purpose. The Statement has not been audited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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