Dexion Absolute Limited (the
“Company”)
September Final Net Asset Values
Ordinary Shares
The final net asset values of the Company’s Ordinary Shares as
of 30 September 2015 are as
follows:-
Share Class |
NAV |
MTD
Performance |
YTD
Performance |
GBP Shares |
190.49p |
-1.88% |
+3.59% |
EUR Shares |
€2.6434 |
-1.37% |
-0.34% |
USD Shares |
$4.0301 |
-1.90% |
+2.82% |
2011 Redeemed Shares
The net asset value of the Company’s 2011 Redemption Portfolio
was $1.40 million as of 30 September 2015. This was attributed to the
Redeemed Share class as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
$0.0250 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2012 Redeemed Shares
The net asset value of the Company’s 2012 Redemption Portfolio
was $3.16 million as of 30 September 2015. Shares redeemed pursuant to
the 2012 Redemption Offer have a single USD net asset value based
upon exchange rates at the relevant date. This was attributed
between Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
EUR Shares |
$0.0243 |
USD Shares |
$0.0267 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
2013 Redeemed Shares
The net asset value of the Company’s 2013 Redemption Portfolio
was $3.77 million as of 30 September 2015. Shares redeemed pursuant to
the 2013 Redemption Offer have a single USD net asset value based
upon exchange rates at the relevant date. This was attributed
between Redeemed Share classes as follows:-
Share Class |
NAV per Redeemed
Share |
GBP Shares |
$0.0284 |
EUR Shares |
$0.0349 |
USD Shares |
$0.0401 |
All of the Redeemed Shares have been cancelled. Accordingly, the
“NAV per Redeemed Share” represents the amount then owed by the
Company in respect of such Redeemed Shares at the relevant
date.
These valuations, which have been prepared in good faith by the
Company's administrator, are for information purposes only and are
based on the unaudited estimated valuations supplied to the
Company's investment adviser, Aurora Investment Management L.L.C.
(“Aurora”), by the administrators or managers of the Company's
underlying investments and such valuations may not be considered
independent or may be subject to potential conflicts of interest.
Both weekly manager estimates and monthly valuations may be
produced as at valuation dates which do not co-incide with
valuation dates for the Company, may be based on valuations
provided as of a significantly earlier date, may differ materially
from the actual value of the Company's portfolio and are unaudited
or may be subject to little verification or other due diligence and
may not comply with generally accepted accounting practices or
other generally accepted valuation principles. The Company's
investment adviser, investment manager and administrator may not
have sufficient information to confirm or review the completeness
or accuracy of information provided by those managers or
administrators of the Company's investments. In addition, those
entities may not provide estimates of the value of the underlying
funds in which the Company invests on a regular or timely basis or
at all with the result that the values of such investments may be
estimated by the Aurora. Since 1 April
2013 the Company has been transitioning to becoming a feeder
fund of Aurora Offshore Fund Ltd II ("AOFL II"). AOFL II's
investment manager is also the investment adviser to the Company
and so valuations of the Company's investment in AOFL II may be
subject to potential conflicts of interest. As at 1 October 2015 approximately 95.67% of the
Continuing Portfolio (by NAV) was invested in AOFL II. The value of
designated investments as at 1 October
2015 equates to approximately 1.56% of the Continuing
Portfolio NAV. Certain other risk factors which may be relevant to
these valuations are set out in the Company's prospectus dated
17 October 2007 and the Company's
circulars dated 15 April 2011,
5 April 2012 and 22 February 2013.
Net asset values for Redeemed Shares include only those costs
and expenses attributable to Redeemed Shares which have been
accrued as at the relevant NAV date.
Monthly Portfolio Review
Investment adviser portfolio
outlook
Looking forward, with returns available from market beta
generally expected to be less attractive, we are focused on
managers with less market exposure who can extract alpha from
security selection within and across sectors. We remain
constructive on the environment for corporate activity and are
continuing to emphasize our event driven exposure within the
portfolio. We expect an abundance of M&A, spin-offs and other
value-enhancing events, whether pursued by management alone or
spurred on by the involvement of an engaged shareholder, to
continue to drive idiosyncratic gains for fundamentally-oriented
strategies. We continue to believe that the macro allocation stands
to benefit from increased volatility related to shifting global
supply/demand characteristics and central bank policy
differentiation, and can serve as an effective hedge should market
dynamics change and create a more challenging micro-oriented,
security selection environment. The allocation to portfolio hedge
is expected to marginally increase as options markets in currencies
and fixed income are presenting compelling entry points for
constructing asymmetric hedges designed to minimise portfolio
losses in times of market stress. Finally, the long/short credit
allocation will be reduced as relatively unattractive yields, low
default rates and lower market liquidity have created a more
challenging backdrop for the strategy. We are actively
monitoring the emerging opportunity in the energy and basic
materials sectors and stand ready to deploy capital in the event
that a favourable opportunity set emerges.
In focus³
Now that our annual Blank Sheet Review (“BSR”) process is
complete, we summarise below a number of key outcomes from this
year’s exercise. The following is intended to provide a concise
overview relative to our multi-strategy portfolios, generally. In
the BSR process, we revisit key assumptions in order to move each
portfolio in a direction that we believe best reflects the current
market environment, choosing to emphasise certain initiatives while
also fully re-underwriting both strategy and manager-specific
allocations.
First, we continued to reduce manager count and concentrate our
portfolios in our highest conviction managers in order to improve
risk-adjusted and absolute returns. From a strategy allocation
perspective, we continue to favour long/short equities due to a
positive market backdrop that includes increased stock dispersion
and a robust corporate activity environment. The composition of our
long/short equities allocation is shifting to increase exposure to
those managers employing a low net exposure approach, as we expect
these managers to perform better in a more volatile market that
rewards deep fundamental insights. Furthermore, we significantly
reduced exposure to the long/short credit strategy, as low yields,
unreliable liquidity and low default rates present a less
favourable opportunity set. Additionally, we have continued to
emphasise uncorrelated macro-oriented strategies, which we believe
will benefit from increased volatility related to shifting global
supply/demand characteristics and central bank policy
differentiation.
With regard to future investments, we continue to emphasise the
special opportunities and strategic capital initiatives. As it
pertains to the former, these are intended to reflect unique,
concentrated and opportunistic investments that are also often
amongst the highest conviction trades in our managers’ portfolios.
Over time, we would expect this count to grow at a moderate pace as
we monetise existing investments while sourcing new and unique
opportunities, often at a significant discount to traditional hedge
fund manager fees. Regarding the strategic capital initiative,
since formal implementation in early 2014 the contributions to
performance from our strategic capital managers have been
meaningful. We will continue to emphasise this initiative due to
the attractive benefits available from the receipt of a percentage
of top-line revenue earned by the manager and reduced fees. Aurora
remains well positioned to execute due to our scale, scope and
experience investing successfully in early stage managers.
Finally, we continue to emphasise the reduction of underlying
manager fees, maintaining a bias against the historical hedge fund
fee model. While recent initiatives including strategic capital and
special opportunities have been a useful mechanism for fee
reduction and return enhancement, we are also utilising our size
and long-standing relationships to negotiate favourable terms with
respect to our traditional hedge fund allocations.
While implementing each of these initiatives above, we remain
cognisant of liquidity with managers and at the position level. We
value the ability to nimbly manage our portfolios with tactical
manager and strategy adjustments.
Market
overview
- For the second straight month, September featured significant
de-risking across a number of asset classes driven by a handful of
significant economic headlines. Notably, weaker-than-expected
economic data out of the US, combined with concerns about growth in
China and emerging markets, caused
the US Federal Reserve to further delay an interest rate hike.
- Major equity markets continued to decline both in the US and
abroad, particularly smaller capitalisation US equities. From a
sector level, energy and basic materials stocks suffered the most
significant declines, spurred by concerns over future commodity
demand from China's slowing
economy. Conversely, more defensively-oriented sectors like
consumer staples and utilities outperformed and generated absolute
gains.
- While credit markets generally produced mixed results, the
higher yielding US leveraged loan and high yield markets sold off
in September as credit spreads widened and investors became
increasingly more risk averse.
- Following the US Federal Reserve's mid-month announcement that
it would not be increasing interest rates in September, US treasury
markets saw yields decline sharply, including the largest one-day
fall in two-year US treasury yields since 2010.
- In currency markets, the US dollar experienced mixed
performance as it appreciated against emerging markets currencies,
particularly in Asia, but weakened
against the Japanese yen and the Chinese renminbi.
- Commodities continued to experience weakness related to strong
supply and lower global growth, largely driven by concerns out of
China. This sell-off was prevalent
across the entire energy complex, which saw the prices of crude
oil, natural gas and energy distillates fall. Furthermore, both
basic metals and precious metals, including gold, silver and
platinum, finished the month lower.
Long/short credit¹: -1.17%
- Losses were primarily driven by exposure to Latin American
energy companies and select Asian currencies.
- Notable detractors included an Argentine energy company, a
Brazilian energy entity and a well-known wireless communications
company that experienced a credit rating downgrade during the
month.
- Losses were mitigated by two liquidation events, one of which
surrounded a UK-based mobile phone retailer, as well as US equity
index hedges.
Long/short equities¹: -1.56%
- As equity markets continued to slide in September, gains from
the managers’ short books were overwhelmed by losses from their
long portfolios.
- Long exposures to the technology, consumer, energy and
healthcare sectors detracted for the generalist managers.
Specifically, contributing to losses were holdings in a generic
drug producer which traded down along with the healthcare sector
more broadly after a prominent presidential candidate released
details of a plan to reduce prescription drug prices, and a
clothing retailer that declined as sales failed to meet
expectations.
- The geographic specialists benefited from a short position in
an Australian liquified natural gas company, as well as long
positions in two private technology companies that experienced
upward revisions in valuation.
- For the sector specialists, losses stemming from long exposures
to the healthcare and TMT sectors generally offset profits from
short energy holdings, where one energy-focused manager was the
standout.
Opportunistic¹: -2.30%
- The opportunistic managers faced a challenging environment as
concerns regarding weakening economic growth and declining
commodity prices spurred a broad-based sell-off of risk
assets.
- Losses stemmed from long credit holdings in a number of
communication-related companies, a New
York-based financial firm facing management and liquidity
concerns, and a Texas-based
retailer that securitised only a portion of its receivables
business.
- Long credit exposure to a customer loyalty company, short
credit exposure to a media company and general equity and credit
index hedges offset losses.
Macro¹: -0.47%
- Losses were largely driven by short currency exposure and long
equity exposure.
- More specifically, within currencies, losses stemmed primarily
from bearish exposure to the Chinese renminbi, with short exposure
to the euro and the Japanese yen also detracting.
- Within equities, losses emanated from long exposure to
Europe, Japan, China,
and the US, although tactical short exposure, particularly to the
European materials and North American energy sectors, offset a
portion of losses.
- Short exposure to European interest rates and long exposure to
Brazilian interest rates also contributed to losses.
Portfolio hedge¹: +2.92%
- The portfolio hedge strategy produced another positive month,
as both short-sellers and tail-risk opportunities investments
experienced positive results.
- The short-sellers benefited from short exposures to the
healthcare, technology, and consumer sectors.
- Notable contributors included short positions in a life
sciences firm, a biopharmaceutical company, a developer of
artificial sweetener, a digital identity provider and a fibre optic
communications firm.
- The tail-risk opportunities investments benefited from a
currency straddle options position on the US dollar and the Chinese
renminbi spot price, spread widening in investment grade credit,
and long positions in longer-term implied volatility on the
Eurostoxx, S&P 500, Nikkei and Hang Seng equity indices. Long
currency volatility positions in various emerging market currencies
were also additive.
Event driven¹: -5.87%
- The event driven strategy experienced a difficult month, as
both the event driven managers and special opportunities
investments produced negative results.
- For the event driven managers, losses emanated from long
holdings in the energy, telecommunications and healthcare
sectors.
- Losses were headlined by positions in a midstream natural gas
company that traded down with the broader MLP market, two French
telecommunications companies which suffered from significant hedge
fund deleveraging, and a specialty drug company that sold-off
sharply on drug pricing concerns.
- Within special opportunities investments, top detractors
included a renewable energy company focused on emerging markets and
a diversified chemicals company.
Strategy |
Allocation
as of 1 October²
(%) |
Number of hedge funds as of
1 October² |
Performance by
strategy¹ (%) |
|
|
|
September |
YTD |
Long/short credit |
24 |
3 |
-1.17 |
+0.98 |
Event driven |
19 |
4 |
-5.87 |
-3.34 |
Long/short
equities |
31 |
11 |
-1.56 |
+1.78 |
Opportunistic |
7 |
3 |
-2.30 |
-6.74 |
Macro |
12 |
6 |
-0.47 |
-2.41 |
Portfolio hedge |
7 |
2 |
+2.92 |
+7.97 |
Total |
100 |
29 |
|
|
¹Effective 31 May 2011,
31 May 2012 and 28 February 2013, the Company created separate
redemption portfolios for redeeming shareholders from the EUR (for
2011, 2012 and 2013), USD (for 2012 and 2013) and GBP (for 2013
only) share classes. All information presented herein is for the
Continuing Portfolio only. Strategy returns are in USD, are net
only of the fees and expenses of the underlying managers and gross
of the fees of Company’s investment manager and investment adviser
and the operating expenses of the Company and AOFL II. In addition
to the Company’s direct holdings, strategy returns include the
underlying manager holdings in AOFL II. The investment adviser
implements the ‘Modified Dietz’ methodology for calculating the
Company’s portfolio hedge strategy returns, which takes into
account the amount of time an investment is held. Under unusual
market circumstances, there are certain limitations to the Modified
Dietz methodology and under such circumstances the investment
adviser may modify, adjust or apply a different methodology if it
determines in its reasonable discretion that doing so will more
accurately reflect the rate of return of the Company’s portfolio
hedge strategy.
²Allocations for the Continuing Portfolio are based on
30 September 2015 results and
1 October 2015 capital allocations,
net of cash effect and including, for Portfolio hedge only, the
delta-adjusted exposure derived from option hedges, the notional
value of futures hedges, and dedicated notional gold exposure, if
any. The Company classifies all managers by reference to only one
of the core trading strategies provided in the chart (which include
several strategies whose nature is multi-strategy). In certain
instances, and over time, a manager may utilise multiple trading
strategies. Consequently, it is possible that the Company’s
determination of a manager’s primary trading strategy may change
over time and may differ from how others may classify such
manager’s primary trading strategy. Strategy allocations may vary
over time. Numbers may not sum to 100% due to rounding.
For purposes of determining manager count, the manager treats
investments in different hedge funds managed by the same manager
using the same strategy as a composite and does not include any
“Excluded Managers”. An Excluded Manager is any manager (1) for
which the Company has submitted a full redemption request or (2)
that manages only “Market Opportunities Investments” within the
strategy. Market Opportunities Investments represent an aggregation
of a select set of unique, concentrated, and opportunistic
investments that may be added to the Continuing Portfolio to
benefit from compelling and timely risk seeking and risk limiting
investment opportunities. The Company’s Investment Adviser
classifies all of the Company’s managers by reference to only one
of the core trading strategies provided in the chart (which include
several strategies whose nature is multi-strategy). In certain
instances, and over time, a manager may utilise multiple trading
strategies. Consequently, it is possible that the Company’s
Investment Adviser’s determination of a manager’s primary trading
strategy may change over time and may differ from how others may
classify such manager’s primary trading strategy.
³The In focus section of this report is for information purposes
only. Any opinion expressed in this report, including with respect
to the market events and potential investment opportunities that
may arise, is purely the opinion of the Company’s Investment
Adviser, may be speculative, and is subject to change without
notice. This report should not be considered investment advice or
relied upon as such. This report should be not be considered an
indication of the future investment decisions that the Company’s
Investment Adviser will make for the Company. Statements that are
made in this report that are not based on historical facts are
forward-looking statements. Although such statements are based on
the Investment Adviser’s current estimates and expectations, and
currently available competitive, financial, and economic data,
forward-looking statements are inherently uncertain. There can be
no assurance that the estimates and expectations made in connection
with any forward-looking statement will prove accurate, and actual
results may differ materially. The Investment Adviser makes no
representations or warranties regarding the accuracy or
completeness of the information included in this report and is not
liable in any way as a result of its use.
Supplementary Information
Click on, or paste the following link into your web browser, to
view a full review of the Dexion Absolute Limited portfolio.
http://content.prnewswire.com/documents/PRNUK-2910150922-54CA_DAL_MPR_2015_September_CC.pdf