BH Global Limited - Annual Report and Audited Financial Statements 2016

Hamilton, Bermuda: March 31, 2017 - In a filing with the Bermuda Stock Exchange (“BSX”) BH GLOBAL LIMITED (the “Company”; Ticker: BHGU.BH) reported Annual Report and Audited Financial Statements 2016.

BH Global Limited

Annual Report and Audited Financial Statements 2016

31 December 2016

Chairman’s Statement

Dear Shareholder,

In 2016 growth in the Net Asset Value (“NAV”) per share for BH Global Limited’s (the “Company”) two share classes was the strongest since 2009. That growth fully made up and substantially surpassed the modest decline that had occurred in 2015. The US Dollar is the Company’s functional currency and the NAV per share of the US Dollar class appreciated by 7.42% and that of the much larger Sterling class by 6.60%.

I consider the results to be very creditable when conditions in world debt markets, at least until towards the end of the year, continued to be challenging for macro traders. In contrast, 2016 was a year when continuing loose monetary conditions boosted many equity markets, albeit with significant volatility. In consequence the Company’s performance might appear to be modest as compared with developed equity markets. However, the performance of the Company is not intended to be benchmarked against any equity market index. The Company is intended to have low correlation to both bond and equity markets with limited downside risk, and therefore, act as a diversifier in the construction of portfolios. In terms of NAV per share it has performed just such a function and one which will be valuable when equity markets falter, as they surely will do at some stage in the future. The Company aims to deliver positive annual NAV growth and that has indeed been achieved in seven out of the eight calendar years since its first full year in 2009.

Since 1 September 2014 the Company has invested all of its assets, save for working cash balances, in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS”). At 31 December 2016 BHMS had net assets of US$1.32 billion and BH Global’s investment of US$439 million represented approximately 33.2 % of BHMS. Since 1 September 2014 the Direct Investment Portfolio (“DIP”) as a percentage of underlying assets has grown from 18.1% to 57.7% at 31 December 2016, at which time the DIP was allocated to ten individual trading books. All of the traders with a DIP allocation also manage trading books within the Brevan Howard Master Fund, in which BH Global retains a significant holding through BHMS amounting to 22.8% of the Company’s assets.

The change in investment strategy from 1 September 2014 has changed the Company significantly. The percentage of assets now allocated to the DIP by the Investment Committee of the manager, Brevan Howard Capital Management LP (the “Manager”) provides significant flexibility in asset allocation and it is very pleasing to note that the DIP appreciated by 10.72% adjusted for fees and was again the largest contributor to the Company’s overall performance.

Discount and NAV Enhancement

For much of the year the Board continued with an active buyback programme seeking to moderate the discount to NAV at which the Company’s shares traded. Towards the end of the year, as the NAV per share increased proportionately ahead of the share price the discount widened and at the year-end stood at 8.92% for the Sterling class of shares.  Since the year-end there have been periods when it has widened further.

The directors consider the widening of the discount to be very disappointing. Whilst a more active buyback programme might have moderated the widening, they consider the key to narrowing the discount is continuing good NAV per share performance leading to natural demand for the Company’s shares. NAV per share performance has been positive every month since 1 October 2016. Nevertheless, the discount has remained at close to 10% in recent weeks and the Company has resumed a more active buyback programme aimed at encouraging a reduction in the discount. This policy will be reviewed regularly concomitant with consideration of the Company’s future strategy.

During the year 2,645,332 Sterling shares were bought back at a weighted average discount of 7.66% and a cost of £33.173 million together with 736,928 US Dollar shares at a weighted average discount of 7.34% and a cost of $9.142 million. These buybacks added 12 pence (0.85%) and 16 cents (1.21%) respectively to NAV per share in 2016.

The Board

As foreshadowed a year ago, the Company has moved forward to appoint an additional director. On 17 January 2017 the Company announced that Julia Chapman, a solicitor qualified in England & Wales and in Jersey with over 25 years' experience in the investment fund and capital markets sector was appointed as a director.

Julia is a resident of Jersey. Prior to moving to Jersey she worked at Simmons & Simmons in London. In Jersey she became a partner of Mourant Ozannes and subsequently Senior Counsel for State Street's alternative investment business. In July 2012, Julia left State Street to focus on the independent provision of directorship and governance services to a number of investment fund vehicles including GCP Infrastructure Investments Limited and Henderson Far East Income Limited. As is the case for all continuing directors of the Company, Julia will offer herself for re-election to the Board at the Annual General Meeting to be held on 26 June 2017. In addition I anticipate that further Board changes will take place in due course and it is likely that another new director will be appointed later this year.

Three current directors of the Company, John Hallam, Talmai Morgan and Nicholas Moss have served as directors since the formation of the Company in 2008. Following Julia Chapman’s appointment in January, Talmai Morgan has indicated that he does not intend to offer himself for re-election at the AGM. Since I joined the Board in 2013, I have experienced Talmai’s forensic analysis of issues and his wise counsel. On behalf of his fellow directors and of all shareholders I would like to thank Talmai for his dedicated service as a director of BH Global.

Relationship with the Manager

The Board maintains dialogue with the Manager both at formal Board meetings and regularly in between meetings.  Investment allocations for BHMS, and thus indirectly for the Company, are made by Magnus Olsson as portfolio manager and his colleagues on the Manager’s Investment Committee. The corporate relationship with the Manager is maintained by my contact with senior members of the Manager’s management. Over the year I had a number of meetings with such senior management in the light of the changing landscape for both investors in, and managers of, hedge funds. The level of fees has featured large in such discussions. 

On 19 October 2016 the Company announced that the Manager had agreed to waive any management fee (but not performance fee) in respect of performance-related growth of the Company from 3 October 2016 onwards. Since that date the continuing positive performance has meant that the Company has already benefited from the concession although that is being eroded by the reduction in the NAV occasioned by buybacks.

That limited fee concession is of itself welcome. However, the trend of fees in the market generally has been relentlessly downwards and the Board is engaged in active discussions with the Manager as to whether the current level of management fees payable by the Company remains appropriate. I will report further just as soon as I am able to do so.

The future for the Company

As I mentioned earlier when commenting on the discount, the key to success for the Company is consistent and sustained growth in NAV, both per share and, ideally, of the Company as a whole. NAV per share performance is principally in the hands of the Manager to deliver. The Manager has advised the Board that it expects attractive trading opportunities to open up as interest rates rise, initially in the United States and thereafter in other countries. Some of those opportunities have already begun to manifest themselves and contributed to the strong NAV per share performance starting in October 2016.

With the discount still close to 10% it is difficult at present to see a route that will deliver an increase in the total assets of the Company. If during 2017 circumstances are not forthcoming that will lead to a substantial and sustained reduction in the discount to NAV at which the Company’s shares trade the Board will consider such further options as are available to it to enhance shareholder value. Hopefully positive NAV per share performance will lead to increased investor interest in the Company’s shares and thus to a natural reduction in the discount. But I note the many corporate actions that have taken place in recent years across the listed alternatives space and, absent that natural demand for the Company’s shares developing, I would expect the Company’s Board will propose further positive action.  

Conclusion

As always I welcome feedback from shareholders. In the last 12 months I have visited almost all of the Company’s major shareholders and noted carefully their views. Even though there have been no significant recent changes since the changes introduced in 2014, shareholders should not underestimate the Board’s determination to act in the best interests of the shareholders and that we will strive to do at all times.

Yours sincerely,

Sir Michael Bunbury

Chairman

The remainder of the filing can be viewed at: www.bsx.com/CompanyDocuments/1099937707/BH%20Global%20Limited%2031.12.16%20RNS%20V2.pdf