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BH CREDIT CATALYSTS LIMITED
MONTHLY SHAREHOLDER REPORT: CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document ©Brevan Howard (2013). All Rights Reserved. | ||
Important Legal Information and Disclaimer BH Credit Catalysts Limited ("BHCC") is a feeder fund which invests in Brevan Howard Credit Catalysts Master Fund Limited (the "Fund"). DW Investment Management, LP ("DWIM"), Brevan Howard Asset Management LLP ("BHAM") and Brevan Howard Capital Management LP ("BHCM"and BHCM together with BHAM, "Brevan Howard") have supplied the information herein regarding BHCC's and the Fund's performance and outlook. BHAM is authorised and regulated by the Financial Conduct Authority (the "FCA") of the United Kingdom. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 and the handbook of rules and guidance issued from time to time by the FCA (the "FCA Handbook"). The material relating to BHCC and the Fund included in this report has been prepared by DWIM and Brevan Howard and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in BHCC or the Fund. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to BHCC and the Fund have been obtained or derived from sources believed by DWIM and Brevan Howard to be reliable, but DWIM and Brevan Howard make no representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHCC, the Fund, DWIM and Brevan Howard expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. All investments are subject to risk. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. Tax treatment depends on the individual circumstances of each investor in BHCC and may be subject to change in the future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in BHCC, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice. Potential investors in BHCC should seek their own independent financial advice. BHAM neither provides investment advice to, nor receives and transmits orders from, investors in BHCC nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FCA Handbook. BCCLNL20131129 | ||
BH Credit Catalysts Limited Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Brokers: J.P. Morgan Securities Ltd Dexion Capital Plc Listing: London Stock Exchange (Premium Listing) | Overview BH Credit Catalysts Limited ("BHCC") is a closed-ended investment company, registered and incorporated in Guernsey on 19 October 2010 with an unlimited life (Registration Number: 52520). The manager of BHCC is Brevan Howard Capital Management LP ("BHCM"). BHCC invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Credit Catalysts Master Fund Limited (the "Fund"). The investment manager of the Fund is DW Investment Management, LP ("DWIM"). BHCC was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 December 2010. Total Assets $214 mm1 1. As at 29 November 2013 by BHCC's administrator, Northern Trust. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Information | BH Credit Catalysts Limited NAV per Share (as at 29 November 2013)
BH Credit Catalysts Limited NAV per Share % Monthly Change
Source: Fund data is provided by the Administrator of the Fund, International Fund Services (Ireland) Limited. BHCC NAV and NAV per Share data is provided by BHCC's Administrator, Northern Trust. BHCC NAV per Share % Monthly Change is calculated by Brevan Howard. BHCC NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHCC. NAV performance is provided for information purposes only. Shares in BHCC do not necessarily trade at a price equal to the prevailing NAV per Share. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ASC 820 Asset Valuation Categorisation* | Brevan Howard Credit Catalysts Master Fund Limited Unaudited Estimates as at 29 November 2013
Source: Brevan Howard * These estimates are unaudited and have been calculated by Brevan Howard using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets. Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Review | DW Investment Management, LP ("DWIM") has provided the following performance review and market summary. The NAV per share of BHCC USD Shares appreciated by 1.70% (net of fees) in November, with approximately 55% of monthly performance generated by mortgage / asset backed strategies. The remaining 45% of returns came from corporate strategies, with each of the distressed, structured and performing corporate strategies contributing positively for the month. Within the mortgage and asset backed portfolio, US residential mortgage backed holdings were the strongest performers for November. This follows a strong October for many of these positions, as developments in litigation settlement situations (so called "put-back" trades) were positively received by the market. Specifically, JP Morgan announced a settlement with institutional investors to pay $4.5 billion to settle representation and warranty related claims. Additionally, monoline trades and CMBS positions made meaningful contributions to mortgage / asset backed strategy returns over the month. Performing long / short strategies were the largest contributors to the corporate credit portfolio in November, generating over 70% of corporate returns. Contributions came from a variety of fundamentally based positions whose valuations were impacted positively by catalysts over the course of the month. Among the stronger contributors were positions in Beazer Homes and Bon-Ton Department Stores, both of which announced strong operating results for the quarter ended September 2013. The Fund's position in Micron Technologies has benefited from strong demand and pricing trends in DRAM pricing into year end. As investors look at clean financials post the third quarter, which include the Elpida acquisition, the earnings power and value proposition are easier to understand. We generated gains from the Fund's JC Penney short position as markets became more concerned about the company's longer term credit quality in the wake of its well publicised operating issues. Additionally, the Fund's Caesars Entertainment holdings benefited over the month as reports circulated that the company may seek to strip guarantees associated with debt lower in the company's capital structure. In contrast, the Fund's Clear Channel holdings posted losses on the month, as the market sought to digest the implications of the company's attempt to extend its maturity profile from the current concentration in the 2016 to 2019 period out to the 2019 to 2021 timeframe. Despite the losses in November, the Clear Channel positions remain one of the Fund's larger winners for the year. Following the proposed maturity profile changes, we have adjusted the Fund's positioning somewhat, but expect the Fund's Clear Channel holdings to regain November losses going forward. Structured corporates generated just under 20% of November returns, as bespoke corporate structured positions rebounded from the small losses experienced in October. Distressed strategies contributed the balance of November corporate returns. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Market Review and Outlook | Equity markets generated positive returns in November, with the S&P 500 increasing approximately 2.8% on the month, while credit markets were more mixed. US high yield bonds (Barcap US HY index) showed modest gains of 0.5% while investment grade bonds posted losses of approximately 0.2% (Barcap US corporate index). Asset backed markets were generally positive in November, with good US housing data supporting fundamentals in residential markets in particular. In other markets, interest rates increased somewhat over the month (five year US Treasury yields +4bp, ten year yields +19bp), European stocks rose, but to a lesser extent than in the US (EuroStoxx50, +0.6%) and volatility broadly fell on the month (VIX down 2.2 volatility points, from 15.2% to 13%). US mutual fund flows, while still positive for both equity and credit in November, seem to be slowing somewhat as we move closer to year end. We have yet to see strong indications of a "great rotation" out of credit assets and into equities, as both credit and equity funds continue to see inflows (largely at the expense of government bond and municipal funds), and in November these flows were fairly balanced between equity and credit funds on a percent of market capitalisation basis. New issuance in corporate credit was also slightly quieter in November than in recent months. Across investment grade and high yield, the flood of new issuance that characterised the first three quarters of 2013 subsided. The two notable exceptions to this decline in issuance have been in US leveraged loans and European high yield. In asset backed markets, we saw announced housing data turn somewhat more positive over the month, as October house price surveys were released showing an increase of 1.4% versus increases of less than 1% in each of July, August and September (Corelogic). Additionally, new home sales returned to the pace achieved in the first half of 2013 (c.450k seasonally adjusted annual rate), in contrast to drops in new home sales seen over the third quarter. Residential mortgage backed markets also received a boost from the formal announcement of JP Morgan's settlement of representation and warranty related litigation. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Enquiries | Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard +44 (0) 1481 74 5315 |
Risk Factors
Acquiring shares in BHCC may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHCC (and therefore the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for shares in BHCC must be able to bear the risks involved. These include, among others detailed in BHCC's Prospectus, the following:
?The Fund is speculative and involves substantial risk.
?The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund will invest in illiquid securities.
?Past results of the Fund's investment manager is not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile.
?An investor could lose all or a substantial amount of his or her investment.
?The investment manager has total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment manager. The use of a single advisor could mean lack of diversification and, consequently, higher risk.
?Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid.
?The investment manager's incentive compensation, fees and expenses may offset the Fund's trading and investment profits.
?The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.
?The Fund is not subject to the same regulatory requirements as mutual funds.
?A portion of the trades executed for the Fund may take place on foreign markets.
?The Fund is subject to conflicts of interest.
?The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.
?The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.
?The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.
The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in shares in BHCC and therefore reference should be had to BHCC's Prospectus and related offering documentation for a complete description of these and other relevant risks.
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