TIDMBHUE TIDMBHCF
26 April 2012
BlackRock Hedge Selector Limited
Publication of Non-Statutory Accounts
The financial information contained in this announcement does not constitute
statutory accounts for the year to 31 December 2011 as defined in the Companies
(Jersey) Law 1991, but is derived from those accounts. The annual report and
financial statements for the year ended 31 December 2011 will be filed with the
Jersey Financial Services Commission.
The report of the Auditor for the year ended 31 December 2011 contains no
qualification, did not draw attention to any matters by way of emphasis and did
not contain statement under section 113B(3) or (6) of the Companies (Jersey)
Law 1991 (as amended).
This announcement was approved by the Board of Directors on 26 April 2012.
Performance Record
UK Emerging Companies Shares
As at As at
31 December 31 December
2011 2010
Share Price 120.00p 124.50p
Net Asset Value per share 122.82p 123.92p
(Discount)/Premium (2.30%) +0.47%
Year ended Period ended
31 December 31 December
2011 2010*
Share Price performance (3.61%) +24.50%
NAV performance (after deducting launch costs) (0.89%) +23.92%
NAV performance (before deducting launch costs) (0.89%) +24.85%
FTSE 100 Total Return Index (2.18%) +19.60%
FTSE 250 Total Return Index (10.06%) +30.30%
FTSE Small Cap Total Return Index (12.53%) +15.60%
Cash Fund Shares
As at As at
31 December 31 December
2011 2010
Share Price 99.00p 99.25p
Net Asset Value per share 101.75p 100.49p
(Discount) (2.70%) (1.23%)
Year ended Period ended
31 December 31 December
2011 2010*
Share price performance (0.25%) (0.75%)
NAV performance +1.25% +0.49%
Underlying cash fund - monthly gross annualised yield** +0.80% +0.70%
7 Day GBP LIBID 0.5% +0.4%
* Period from launch 28 September 2009 to 31 December 2010.
** Comparative percentages for 2010 are based on published performance data
from 30 September 2009 to 31 December 2010.
Chairman's Statement
Performance
Over the year to 31 December 2011, the Company's UK Emerging Companies Share
Class NAV fell by 0.89% (including all ongoing expenses with a total expense
ratio of approximately 0.50% per annum), reflecting the underlying performance
of the UK Emerging Companies Hedge Fund ("the Hedge Fund") which returned
-0.36% over the year. The Company's share price fell by 3.61% over the same
period. The Hedge Fund's investment objective is to maximise total returns by
investing primarily in mid and small cap UK equities, whilst limiting
correlation with the UK equity market by maintaining a short portfolio.
Continuing uncertainty over Europe has been a factor in driving significant
underperformance in the mid and small cap markets over the year, with the FTSE
100 Index falling by 2.18%, the FTSE 250 Index by 10.06% and the FTSE Small Cap
Index by 12.53% over the year.
Since the year end and based on the NAV as at 20 April 2012, the Company's UK
Emerging Companies Share Class NAV has increased by 3.8% and the share price has
risen by 0.8% resulting in the shares trading at a 5.1% discount to NAV
at the time of writing. It is pleasing to note that for the second year
running, the Hedge Fund won the Euro Hedge Fund Award for Best Long Term
Performance (Equity Strategies). Additional information on the performance of
the Hedge Fund NAV on a month by month basis is given in the Managers Report.
The Cash Fund NAV increased over the year by 1.25% and the share price
decreased by 0.25%. Since the year end and based on the NAV as at 20 April
2012, the Company's Cash Fund NAV has increased by 0.04% and the share price
has risen by 0.5%. Further information on performance is included in the
Investment Manager's Report.
Share issues
The Company issued a total of 950,000 new UK Emerging Companies shares during
the year at a premium to NAV for a total consideration of GBP1,200,259 (after
deduction of sales costs). Further details are set out in note 6 and in the
Directors' report on page 12 of the Annual Report. No Cash Fund Shares were
issued in the year or, except as noted in the following paragraph, in the
period since the year end.
Share conversions
The Company's Articles of Association incorporate provisions enabling holders
of the UK Emerging Companies Shares to convert all or part of their holding
into Cash Fund Shares on a quarterly basis, with a valuation point of 31 March,
30 June, 30 September and 31 December each year. Holders of Cash Fund shares
have the right to convert all or part of their holding into UK Emerging
Companies shares annually with a valuation point of 30 September. No conversion
elections were made during the year. The deadline for the March 2012 conversion
date expired on 18 January 2012 and elections were received in respect of
20,000 shares for conversion into the Cash Fund Shares. This resulted in the
issue of 24,245 Cash Fund shares on 12 April 2012. Following the conversion,
there were 48,052,000 UK Emerging Companies Shares in issue and 61,197 Cash
Fund Shares. The deadline for the June 2012 conversion expired on 18 April 2012
and the Company received elections in respect of 1,526,000 UK Emerging
Companies Shares which will be converted into Cash Fund Shares. Conversion will
occur shortly after the share conversion date of 30 June 2012 or shortly
following receipt by the Company of the proceeds of redeeming its shares in the
underlying fund.
Cash Exit Mechanism and share redemptions
The Company's Articles of Association provide that holders controlling in
excess of two-thirds of the issued shares of any class may require the
Directors to provide them with the opportunity to dispose of such shares for
net asset value less disposal costs. The Articles also provide shareholders
with the opportunity to dispose of shares for Net Asset Value less costs if at
any time the average discount over the previous 6 months was in excess of 5%.
The average share rating over the year to 31 December 2011 was a premium of
0.81%. At no time in the year did the average discount on a 6 month rolling
basis exceed 5% and consequently the Cash Exit Mechanism has not been invoked.
Share rating
The Directors recognise that it is in the long term interests of shareholders
that the Company's shares do not trade at a significant discount to their
prevailing NAV. The UK Emerging Companies shares have traded in the range of a
premium of 7.00% and a discount of 2.30% over the year, with the average being
a premium of 0.82%. The shares ended the year at a discount of 2.30% but at the
date of publication of this report the rating had widened to a discount of 5.1%.
The Board is mindful of the Company's share rating and will continue to focus
on maintaining a narrow margin between the share price and the NAV. The UK
Emerging Companies Share Class NAV performance over the period has been
relatively strong and the Board believes that the shares remain an attractive
investment opportunity, giving access to the Hedge Fund which is otherwise
capacity constrained.
The Cash Fund shares have traded in the range of a discount of 1.23% to 2.73%
over the year, with the average discount being 1.99%. The shares ended the year
at a discount of 2.70% and at the date of this report the shares were trading
at a discount to NAV of 2.2%.
Share classes
As set out in the Company's Prospectus, the Company was designed to be able to
issue a range of classes of Feeder Fund shares, each providing investors with
exposure to the performance of an investment fund managed by BlackRock. The
Board are mindful of this and continue to pursue ideas for suitable additional
share classes subject to identification of market demand.
Dividends
It is the Directors' policy to distribute all net income received by the
Company in respect of the assets attributable to the Cash Fund Shares. For the
period since launch to 31 December 2011, the Cash Fund Shares have generated
net revenue of 1.75p per share which, owing to the de minimis value, will be
rolled forward and paid out at a future distribution date.
EU Alternative Investment Fund Managers Directive
The EU Alternative Investment Fund Managers Directive (the "Directive") is
expected to be implemented into national EU member states laws by the second
quarter of 2013. Listed investment companies will constitute "alternative
investment funds" for the purposes of the Directive, which will regulate, inter
alia, the management of the Company by the Manager and marketing of the
Company's securities.
Requirements of the Directive include revised transparency and disclosure
obligations on the Company, ensuring that the Company has an appropriately
authorised institution acting as its "depositary", the requirement to have
independent portfolio valuations and ensuring that any delegate of the Manager
is notified to a competent regulatory authority. Whilst certain provisions of
the Directive may benefit the Company (such as the possibility of an increased
ability to market the Company's securities to professional investors throughout
the EU from 2015), some of these changes may have adverse consequences for the
Company (and all similar investment companies) and might increase materially
compliance and regulatory costs. Furthermore, service providers of the Company,
such as custodians, may become subject to increased regulatory standards and
statutory liability under the Directive.
Annual General Meeting ("AGM")
The Company's third AGM will be held at 12.00 noon on Tuesday 3 July 2012 at
the offices of BlackRock (Channel Islands) Limited. The offices are located on
the 4th Floor, One Waverley Place, Union Street, St Helier, Channel Islands,
JE1 0BR.
Panel waiver
Certain persons who are deemed to be acting in concert with the Company's
investment manager for the purposes of the UK Takeover Code currently
beneficially own 28.8 per cent. of the total voting rights in the Company in
aggregate. If the Company were to exercise the buy back authority which it is
seeking at the AGM in full, this would increase beyond the 30 per cent. of
voting rights which would trigger a mandatory offer under Rule 9 of the UK
Takeover Code. The Company is therefore seeking at the AGM approval of
independent shareholders for the waiver of any such mandatory bid requirement.
Please refer to pages 17 to 20 and 44 to 56 of the Annual Report for further
information.
Outlook
Despite continuing concerns over the Eurozone debt crisis, December saw a
continuation of the 4th quarter recovery in equity markets, with more investors
looking through the risk-focus that increasingly dictated events in 2011, in
order to recover earlier losses. Despite this, it is likely that global GDP
growth will decelerate and that European uncertainty will remain for some time
to come, making the attributes of hedge fund investing attractive to investors.
We expect the award winning UK Emerging Companies Hedge Fund's strong
performance record to continue to attract demand, especially in more volatile
markets.
Howard Myles
Chairman
26 April 2012
Principal risks
The key risks faced by the Company are set out below, full details of these
risks can be found in the Company's prospectus dated 16 September 2009. The
Board regularly reviews and agrees policies for managing each risk, as
summarised below.
- Strategy/performance risk - The Board is responsible for deciding the
investment strategy to fulfil the Company's objectives and monitoring the
performance of the Investment Manager. The strategies employed by the
Investment Manager may be speculative and involve substantial risk of loss in
the event of failure or deterioration. To manage this risk the Investment
Manager provides an explanation of its investment management and risk processes
together with an in depth review of strategies and investment opportunities in
the current market environment. The Board monitors the net and gross equity
exposure of the Hedge Fund, the underlying portfolio composition and the
processes the Investment Manager has in place to ensure the risks associated
with particular investment strategies are minimised, based on the exposure and
position limits inherent in the Hedge Fund's investment policies. The Board
does not have responsibility for determining the investment strategy for the
underlying Hedge Fund, but monitors key performance indicators and receives
regular updates from the Investment Manager in respect of investment strategy
and results.
- Regulatory risk - The Company is exposed to regulatory risk through changes
in laws or regulations, including tax laws, or new interpretations or
applications of laws and regulations, that are applicable to the Company's
business.
- Market risk - The Company is exposed to market risk through its investment in
the underlying Hedge Fund and the Liquidity Fund. Market risk is risk
associated with changes in, among other things, market prices of securities or
commodities or foreign exchange or interest rates and there are certain general
market conditions in which any investment strategy is unlikely to be
profitable. The Investment Manager has no ability to control or predict such
market conditions. General economic and market conditions, such as currency and
interest rate fluctuations, availability of credit, inflation rates, economic
uncertainty, changes in laws, trade barriers, currency exchange controls and
national and international conflicts or political circumstances, as well as
natural circumstances, may affect the price level, volatility and liquidity of
securities. In some circumstances, investments entered into by the Hedge Fund
may be relatively illiquid making it difficult or impossible to acquire, or
dispose of them at the prices quoted on the various exchanges, or at the prices
which the Investment Manager considers to be their value at that time.
Accordingly, the Hedge Fund's ability to respond to market movements may be
impaired and it may experience adverse price movements upon liquidation of its
investments. Settlement of transactions may be subject to delay and
administrative uncertainties. The Hedge Fund also utilises derivative
instruments which involve varying degrees of off-balance sheet market risk, and
are subject to changes in the level or volatility of interest rates, foreign
currency exchange rates, and the market values of the financial instruments or
commodities underlying such derivative instruments. This frequently results in
changes in the Hedge Fund's unrealised appreciation/(depreciation) on such
derivative instruments as reflected in the audited Statement of Assets and
Liabilities. Securities sold short represent obligations of the Hedge Fund to
deliver the specified security thereby creating a liability to repurchase the
security in the market at prevailing prices. Accordingly, these securities may
result in off-balance sheet risk, as the Hedge Fund's satisfaction of the
obligations may exceed the amount recognised in the audited Statement of Assets
and Liabilities. These risks and economic and market conditions of this nature
could result in significant losses for the Company, which would have a material
adverse effect on the performance of the Company and returns to Shareholders.
- Operational risk - The Company has no employees and therefore relies upon the
services provided by third parties and is dependent on the control systems of
the Manager, the Investment Manager, the Sub-Administrator and the Custodian.
The security, for example, of the Company's assets, dealing procedures,
accounting records and maintenance of regulatory and legal requirements, depend
on the effective operation of these systems. These are regularly tested and
monitored and an internal controls report, which includes an assessment of
risks together with procedures to mitigate such risks, is prepared by the
Manager and reviewed by the Audit and Management Engagement Committee at least
twice a year. The Custodian and the Manager and Investment Manager also produce
quarterly and annual Statement of Operational Control reports respectively,
which are reported on by their respective reporting accountants and give
assurance regarding the effective operation of controls.
- Counterparty risk - investments are generally subject to counterparty risk
with respect to the brokers, counterparties, clearing houses and exchanges with
which they deal. Any default by one of these parties could result in material
losses to the Hedge Fund and/or the Liquidity Fund, and therefore the Company.
The assets of the Company's, the Hedge Fund's or the Liquidity Fund's
investments held by brokers or counterparties are generally not held in
segregated accounts, and accordingly, in the event of any such default a
Company or fund investment may only have the rights of a general creditor in
the event any broker or counterparty dissolves or files for bankruptcy. In
addition, the institutions, including brokerage firms and banks, with which a
Company or fund investment trades or invests may encounter financial
difficulties that impair the operational capabilities or the capital position
of any such fund investment. Neither the Company nor the Investment Manager
will have any control over the counterparties or brokers used by the Hedge Fund
or the Liquidity Fund.
- Financial risks - The Company's investment activities, and the investment
activities of the Hedge Fund and the Liquidity Fund, expose it to a variety of
financial risks that inter alia include liquidity risk, credit risk and
interest rate risk. Further details are disclosed in note 5, together with a
summary of the policies for managing these risks.
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
Jersey law and regulations. Jersey company law requires the Directors to
prepare financial statements for each financial year. Under that law they have
prepared the financial statements in accordance with applicable law and
accounting principles generally accepted in the United States of America.
The Directors are required to ensure that the financial statements give a true
and fair view of the state of affairs of the Company as at the end of each
financial year and of the profit or loss of the Company for that period. In
preparing those financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies (Jersey) Law 1991. They are also responsible for safeguarding the
assets of the Company and to maintain systems designed to prevent and detect
fraud and other irregularities.
The Directors have delegated responsibility to the Investment Manager for the
maintenance and the integrity of the Company's corporate and financial
information included on the Investment Manager's website.
Legislation in Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the Annual Report includes a fair view of the development and performance of
the business and the position of the Company, together with a description of
the principal risks and uncertainties that the Company faces.
By order of the Board
Howard Myles
26 April 2012
Investment Manager's Report
UK Emerging Companies Shares
Performance Summary
From 1 January 2011 to 31 December 2011, the UK Emerging Companies Hedge Fund
("the Hedge Fund") delivered a net return of -0.36% in the Sterling share
class. After a strong start to the year, the Hedge Fund lost ground in the
summer months as companies at the lower end of the market cap spectrum were the
worst hit by the downturn and they also failed to experience a late rally that
pared back losses for many blue chip stocks by the end of the year. February
produced the strongest returns with +1.11% (net) whilst August was the worst
performing month retracing -2.25% (net).
Portfolio Strategy
With anaemic growth in 2011 being uneven and dependent on industry and
geography, the long book maintained its focus on high quality companies with
strong balance sheets that are exposed to the broader global economy whilst the
short book was weighted towards UK consumer and UK government facing stock.
Gross exposure began the year at around 140% but was brought down to just over
100% by half way through the year as risk was taken off. The net exposure
similarly began at 40% net long and ended around 20%, averaging 28% over the
year. Furthermore for the year, the volatility was 3.09%, the beta 0.19, the
correlation 0.80 and the Sharpe Ratio -0.40. The equivalent annualised figures
since inception are 6.41%, 0.17, 0.39 and 1.91 respectively.
Equity markets became increasingly over-powered by a number of global macro
factors that swung early positive sentiment for risk firmly into reverse. The
natural disasters in Japan and the 'Arab Spring' were followed by the
increasing threat of economic collapse in Europe brought about by an escalating
sovereign debt crisis. The mid-year sharp decline in equity markets impacted
confidence and led to a fall in the rate of global economic growth. Whilst the
pace of decline was somewhat less than feared as the year drew to an end, the
route to growth, sustainable or otherwise, is far from certain. The FTSE All
Share Index fell -3.5% with many other major markets around the world posting
double digit falls. With small and medium sized firms more exposed to the
domestic economy than large cap stocks, it was not surprising to see the Hoare
Govett Smaller Companies Index and the FTSE 250 Index underperform the large
cap index ending down more than -9.10% and -10.06% respectively. The FTSE 100
Index was also down by 2.18% over the year.
Outlook
Whilst US economic data continues in general to exceed expectations on the
upside, the limited fire-power of developed nations (who have been forced to
prioritise austerity), the relatively insular Chinese monetary policy, and the
Franco-German plan for fiscal union within the EU all suggest global risks will
persist into 2012. These concerns have without doubt increased the equity risk
premium; however we are nevertheless optimistic on equity markets given their
low valuations relative to history and to other asset classes. The 2011
disparity between the best and worst performing stocks was much less than in
2008 and for this reason we do not believe there will be a significant market
rotation into lower quality companies. We will therefore stick to our tried and
tested method of fundamental stock selection. We continue to believe that the
emerging markets exhibit the best economic fundamentals and will maintain our
focus on investment in high quality UK companies operating in profitable
sectors and growth areas around the world.
UK Emerging Companies Hedge Fund
Market Capitalisation Breakdown (GBP) - 31 December 2011
Market cap Long Short Net Gross
% % % %
0-0.1bn 7.1 (0.3) 6.8 7.4
0.1-0.25bn9 10.7 (3.7) 7.0 14.4
0.25-0.5bn 5.2 (7.7) (2.5) 12.9
0.5-1bn 23.3 (9.2) 14.1 32.5
1-2.5bn 13.1 (6.9) 6.2 20.0
2.5bn + 2.2 (6.4) (4.2) 8.6
Index 0.0 (5.1) (5.1) 5.1
---- ----- ---- -----
Total 61.6 (39.3) 22.3 100.9
==== ===== ==== =====
Source: BlackRock.
Sector Breakdown - 31 December 2011
Sector Long Short Net Gross
% % % %
Basic materials 2.8 (2.3) 0.5 5.1
Consumer goods 2.7 (3.0) (0.3) 5.7
Consumer services 9.5 (6.7) 2.8 16.2
Financials 6.1 (2.5) 3.6 8.6
Healthcare 2.5 (2.2) 0.3 4.7
Index 0.0 (5.1) (5.1) 5.1
Industrials 23.9 (15.0) 8.9 38.9
Oil & gas 4.1 (0.8) 3.3 4.9
Technology 10.1 (1.1) 9.0 11.2
Telecoms 0.0 (0.5) (0.5) 0.5
---- ---- ---- -----
Total 61.7 39.2 22.5 100.9
==== ==== ==== =====
Source: BlackRock.
UK Emerging Companies Hedge Fund - Performance since Inception
(sterling, net) 2004 2005 2006 2007 2008 2009 2010 2011
January - 1.13% 4.89% 1.09% 0.74% 1.40% 1.93% 0.52%
February - 1.02% 1.87% 1.65% 5.82% -1.01% -0.96% 1.11%
March - 0.59% 1.12% 0.47% 1.72% -1.76% 3.73% 0.35%
April - 1.12% 2.12% 1.50% 2.25% 0.60% 1.76% 0.51%
May 3.22% 0.50% -3.26% 1.27% 4.18% 0.31% -1.10% -0.38%
June 4.07% 1.98% -0.67% 0.55% 5.62% -0.48% 0.26% -0.33%
July 5.79% 3.03% 0.03% 0.35% 1.39% 1.98% 4.56% 0.29%
August 2.53% 1.83% 1.06% 1.19% -1.69% 2.65% 0.04% -2.25%
September 1.20% 2.59% 1.44% 2.33% -2.40% 1.96% 5.82% -0.67%
October 2.48% -2.45% 3.06% 1.17% -1.42% -0.46% 1.26% 0.93%
November 2.15% 3.17% 2.33% 0.19% 1.79% -0.76% 1.52% -0.43%
December 2.31% 2.36% 2.69% 0.77% 0.29% 1.57% 4.23% 0.04%
------ ------ ------ ------ ------ ------ ------ ------
Year-to-Date 26.30% 18.09% 17.73% 13.25% 19.44% 6.05% 25.32% -0.36%
====== ====== ====== ====== ====== ====== ====== ======
FTSE 100
Total
Return Index 10.52% 20.78% 14.43% 7.36% -28.33% 27.33% 19.60% -2.18%
====== ====== ====== ===== ======= ====== ====== ======
FTSE 250
Total
Return Index 16.50% 30.23% 30.21% -2.46% -38.15% 50.64% 30.30% -10.06%
======= ====== ====== ====== ======= ====== ====== =======
FTSE Small
Cap Total
Return
Index 11.46% 22.40% 20.59% -10.55% -43.91% 54.27% 15.60% -12.53%
====== ====== ====== ======= ======= ====== ======= =======
Source: BlackRock.
Risk Statistics Since inception
Annualised Volatility 6.41%
Beta* 0.17
Correlation* 0.39
Sharpe Ratio* 1.91
* vs. Hoare Govett Smaller Companies (excluding Investment Companies).
Source: BlackRock.
Cash Fund Shares
Performance summary
The Cash Fund NAV increased by 1.25% over the year, in comparison with the
Institutional Sterling Liquidity Fund (the "Liquidity Fund") average annualised
yield for the period of 0.8%. The share price decreased by 0.25% over the
period.
The Liquidity Fund seeks to maximise current income consistent with the
preservation of principal and liquidity through the maintenance of a portfolio
of high quality short-term "money market" instruments, and returned an average
annualised yield for the year to 31 December 2011 of 0.8% against a benchmark
return (7 day GBP LIBID) of 0.5%.
The portfolio invests exclusively in first-tier securities, which include
commercial paper, certificates of deposit, floating rate notes, time deposits
and fully collateralised repurchase agreements. The Liquidity Fund must
maintain 50% of its holdings with a short-term rating of A1+/P1 with the
remainder in A1/P1.
Institutional Sterling Liquidity Fund
Portfolio Composition
Portfolio composition %
Certificates of Deposit 18
Financial Company Commercial Paper 11
Government Agency Repurchase Agreement 4
Time Deposits 15
Asset Backed Commercial Paper 1
Treasury Debt 29
Fixed or floating rate notes 21
Commercial Paper 1
---
Total 100
===
Source: BlackRock.
Outlook
Over the period since launch the Liquidity Fund has returned an annualised
yield consistently ahead of its benchmark of 7 day GBP LIBID and is expected to
continue to meet its stated investment objective which is to maximise current
income consistent with preservation of principal and liquidity by the
maintenance of a portfolio of high quality short-term "money market"
instruments.
Institutional Sterling Liquidity Fund
Maturity distribution
Days
1-7 25%
8-30 30%
31-90 38%
91-180 7%
Total 100%
Source: BlackRock.
Monthly gross annualised yield
Institutional 7 Day LIBID
Sterling %
Liquidity Fund
%
October 2009 0.78 0.38
November 2009 0.74 0.38
December 2009 0.73 0.38
January 2010 0.73 0.39
February 2010 0.69 0.40
March 2010 0.64 0.41
April 2010 0.65 0.42
May 2010 0.67 0.43
June 2010 0.68 0.43
July 2010 0.70 0.43
August 2010 0.72 0.43
September 2010 0.74 0.43
October 2010 0.76 0.43
November 2010 0.77 0.43
December 2010 0.76 0.44
January 2011 0.76 0.47
February 2011 0.76 0.49
March 2011 0.76 0.49
April 2011 0.79 0.49
May 2011 0.79 0.49
June 2011 0.80 0.50
July 2011 0.80 0.50
August 2011 0.82 0.50
September 2011 0.80 0.50
October 2011 0.81 0.50
November 2011 0.82 0.50
December 2011 0.74 0.50
Source: BlackRock.
BlackRock Investment Management (UK) Limited
26 April 2012
Statement of Assets and Liabilities
as at 31 December 2011
31 December 31 December
2011 2010
Notes GBP GBP
Assets
Investments at fair value
(cost: 2011: GBP47,730,448 /
2010: GBP46,901,130) 3 59,129,425 58,575,120
Cash and cash equivalents 163,075 35,481
Interest receivable on cash 17 19
Other assets 4,015 3,794
---------- ----------
59,296,532 58,614,414
========== ==========
Liabilities
Sub-Administration fees payable 8 33,562 29,315
Directors' fees payable 42,083 37,083
Audit fees payable 25,500 13,500
Fees due to the Company's broker 29,815 35,847
Accounts payable and accrued
expenses 84,351 68,775
---------- ----------
215,311 184,520
---------- ----------
Net assets 59,081,221 58,429,894
========== ==========
UK Emerging Companies Shares
31 December 31 December
Net asset value per share 2011 2010
Net asset value GBP59,043,620 GBP58,392,762
Shares in issue (Note:6) 48,072,000 47,122,000
NAV per share 122.82p 123.92p
Cash Fund Shares
31 December 31 December
Net asset value per share 2011 2010
Net asset value GBP37,601 GBP37,132
Shares in issue (Note:6) 36,952 36,952
NAV per share 101.75p 100.49p
The financial statements were approved and authorised for issue by the Board of
Directors on 26 April 2012 and signed on its behalf by Howard Myles, Chairman.
Schedule of Investments
as at 31 December 2011
31 December 31 December 31 December 31 December
2011 2011 2010 2010
Fair Percentage Fair Percentage
value of Net Assets value of Net Assets
Investments at fair value GBP % GBP %
Underlying Investment Funds
Cayman Islands
Open-ended Investment Company
BlackRock UK Emerging
Companies Hedge Fund Limited -
Class I60 GBP Shares
(Cost 31 December 2011:
GBP47,693,103)
(Cost 31 December 2010:
GBP46,860,787) 59,092,080 100.02% 58,534,777 100.18%
Ireland
Open-ended Investment Company
Institutional Sterling
Liquidity Fund
(Cost 31 December 2011:
GBP37,345)
(Cost 31 December 2010:
GBP40,343) 37,345 0.06% 40,343 0.07%
---------- ------- ---------- -------
Total Underlying Investment
Funds
(Cost 31 December 2011:
GBP47,730,448)
(Cost 31 December 2010: 59,129,425 100.08% 58,575,120 100.25%
GBP46,901,130)
========== ======= ========== =======
Other Assets 167,107 0.28% 39,294 0.06%
Liabilities (215,311) (0.36%) (184,520) (0.31%)
---------- ------- ---------- -------
Net Assets 59,081,221 100.00% 58,429,894 100.00%
========== ======= ========== =======
Statement of Operations
Period from date
of incorporation
Year ended (17 August 2009) to
31 December 31 December
2011 2010
Notes GBP GBP
Income
Interest 226 1,475
Other income 6,480 907
-------- --------
6,706 2,382
======== ========
Expenses
Directors' fees 68,000 80,000
Sub-Administration fees 8 50,000 62,603
Brokerage charges 35,000 61,322
Audit fees 12,000 13,500
Organisation fees - 364,719
Other expenses 150,943 156,812
-------- --------
315,943 738,956
======== ========
Net investment loss (309,237) (736,574)
-------- --------
Net realised gain on:
Underlying investment funds - 482,159
Net change in unrealised (loss)/gain on:
Underlying investment funds (239,695) 11,673,990
-------- ----------
Net realised and change in unrealised
(loss)/gain on underlying investment
funds (239,695) 12,156,149
======== ==========
Net (decrease)/increase in net assets
resulting from operations (548,932) 11,419,575
======== ==========
Statement of Changes in Net Assets
Period from date
of incorporation
Year ended (17 August 2009) to
31 December 31 December
2011 2010
GBP GBP
Net assets, beginning of year/period 58,429,894 -
---------- ----------
Net (decrease)/increase in net assets:
From operations
Net investment loss (309,237) (736,574)
Net realised gain on underlying investment
funds - 482,159
Net change in unrealised (loss)/gain on
underlying investment funds (239,695) 11,673,990
---------- ----------
(548,932) 11,419,575
========== ==========
From capital transactions
Subscription of UK Emerging Companies
Shares 1,200,259 50,224,200
Subscription of Cash Fund Shares Shares - 3,322,564
Redemption of UK Emerging Companies Shares - (3,253,882)
Redemption of Cash Fund Shares - (3,282,563)
---------- ----------
1,200,259 47,010,319
---------- ----------
Net assets, end of year/period 59,081,221 58,429,894
========== ==========
Statement of Cash Flows
Period from date
of incorporation
Year ended (17 August 2009) to
31 December 31 December
2011 2010
GBP GBP
Cash flows from operating activities
Net (decrease)/increase in net assets
resulting from operations (548,932) 11,419,575
Adjustments to reconcile (decrease)/increase
in net assets resulting from operations to
cash used in operating activities:
Net realised gain on underlying investment
funds - (482,159)
Net change in unrealised loss/(gain) on
underlying investment funds 239,695 (11,673,990)
Purchases of investments (797,017) (52,962,638)
Sale of investments 3,017 6,543,667
Decrease/(increase) in interest receivable
on cash 2 (19)
Increase in other assets (221) (3,794)
Increase in sub-administration fees payable 4,247 29,315
Increase in Directors' fees payable 5,000 37,083
Increase in audit fees payable 12,000 13,500
(Decrease)/increase in brokerage charges
payable (6,032) 35,847
Increase in accounts payable and accrued
expenses 15,576 68,775
---------- -----------
Net cash used in operating activities (1,072,665) (46,974,838)
========== ===========
Cash flows from financing activities
Proceeds from issue of shares 1,200,259 53,546,764
Payments for redemption of shares - (6,536,445)
--------- ----------
Net cash provided by financing activities 1,200,259 47,010,319
========= ==========
Increase in cash and cash equivalents 127,594 35,481
Cash and cash equivalents
Beginning of the year/period 35,481 -
------- ------
End of the year/period 163,075 35,481
======= ======
Financial Highlights
for the year ended 31 December 2011
UK Emerging Companies Shares
Period from
17 August 2009
Year ended (date of
31 December incorporation) to
2011 31 December 2010
p p
Per share operating performance:
Net asset value, beginning of period* 123.92 100.00
------ ------
(Decrease)/increase in net assets resulting
from operations
Net investment (loss)/gain (0.65) (1.53)
Net realised and change in unrealised loss
on underlying investment funds (0.45) 25.45
------ ------
Total from investment operations (1.10) 23.92
------ ------
Net asset value, end of period* 122.82 123.92
------ ------
Total return** (0.9%) 23.9%
===== =====
Ratios/supplemental data:
Net assets, end of year GBP59,043,620 GBP58,392,762
=========== ===========
Ratio of expenses to average net assets***1 (0.5%) (1.1%)
----- -----
Ratio of net investment (loss)/gain to
average net assets*** (0.5%) (1.1%)
===== =====
Cash Fund Shares
Period from
17 August 2009
Year ended (date of
31 December incorporation)
2011 to 31 December 2010
p p
Per share operating performance:
Net asset value, beginning of period* 100.49 100.00
------ ------
Increase in net assets resulting from
operations
Net investment loss 1.27 (1.13)
Net realised and change in unrealised gain
on underlying investment funds (0.01) 1.62
------ ------
Total from investment operations 1.26 0.49
------ ------
Net asset value, end of period 101.75 100.49
------ ------
Total return** 1.3% 0.5%
==== ====
Ratios/supplemental data:
Net assets, end of period GBP37,601 GBP37,132
======= =======
Ratio of expenses to average net assets*** (0.6%) (1.6%)
----- -----
Ratio of net investment gain to average
net assets*** 1.3% (0.9%)
==== =====
* Prior year comparatives for net asset value, beginning of period refers to
the initial subscription price.
** Total return is not annualised and is calculated for each class of shares.
An individual shareholder's return may vary from this return due to timing of
investments.
*** Ratios have been annualised. The ratios have been calculated for each class
as a whole.
1 Ratio of expenses for the UK Emerging Companies Share Class for the period
ended 31 December 2010 includes organisational costs that have been fully
charged to the Fund in this period and represents 0.71% of this ratio. Please
note that the organisational costs are a one off expense for the Fund and have
not been annualised in this calculation.
Notes to the Financial Statements
1. The Company
BlackRock Hedge Selector Ltd ("the Company") is a limited liability registered
closed ended investment company incorporated in Jersey on 17 August 2009. The
Company's UK Emerging Companies Share Class and the Cash Fund Share Class were
listed on the London Stock Exchange on 28 September 2009. The Company is
assessed as a `non-financial services company' under Article 123C of the Income
Tax (Jersey) Law 1961, as amended ("the 1961 Law"), it being a Jersey resident
company which is neither a 'utility company' nor a 'financial services
company'.
The Company has been established with an unlimited life and, with the exception
of Mr. Le Feuvre and Mr. Ruck Keene who are employees of BlackRock, its Board
of Directors is independent of the Investment Manager and the Manager.
The Company has been designed to enable it to issue a range of classes of
Feeder Fund Shares, each of which will provide investors with exposure to the
performance of an investment fund managed by BlackRock. As at 31 December 2011
and 31 December 2010 the only Feeder Fund Shares in existence were UK Emerging
Companies Shares. In addition, at 31 December 2011 and 31 December 2010 the
Company has in issue a class of Cash Fund Shares which provide, via investment
in a BlackRock managed money-market fund, exposure to a portfolio of short-term
money market instruments. Feeder Fund Shares of a particular class may be
converted periodically into Cash Fund Shares, and vice versa.
The UK Emerging Companies Shares invests into the BlackRock UK Emerging
Companies Hedge Fund Limited - Class I60 GBP Shares ("the Hedge Fund"), a Cayman
Islands domiciled hedge fund. The Cash Fund Shares invests into the
Institutional Sterling Liquidity Fund (a sub-fund of "Institutional Cash Series
plc") ("the Liquidity Fund"), an umbrella investment company with variable
capital incorporated with limited liability in Ireland and has been authorised
as a UCITS fund.
The investment objective of the Hedge Fund is to seek to maximise total returns
by investing primarily in mid and small cap UK equities, whilst limiting
correlation with the UK equity market.
The investment objective of the Liquidity Fund is to maximise current income
consistent with preservation of principal and liquidity by the maintenance of a
portfolio of high quality short term "money market" instruments.
BlackRock Investment Management (UK) Limited, is the Company's Investment
Manager and BlackRock (Channel Islands) Limited ("BCI") is the Manager. BCI is
responsible for implementing the Company's investment policies and objectives
as set forth by the Board of Directors. Note 9 gives further details of
transactions with these related parties.
2. Significant accounting policies
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP"), as discussed in the Directors' responsibility statement. The financial
statements reflect the following significant accounting policies:
Cash and cash equivalents
Cash and cash equivalents include investments with an original maturity of
three months or less. Cash and cash equivalents include all cash which is not
under the direction of any independent investment manager. All cash is held
with the Custodian of the Company.
Fair value of financial instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Accounting Standards Codification ("ASC") 825
Financial Instruments, approximates the carrying amounts presented in the
statement of assets and liabilities.
ASC 820 Fair Value Measurements and Disclosures permits the Company, as a
practical expedient to estimate the fair value of the underlying investment
funds based on the net asset value per share or its equivalent, if the net
asset values of the underlying investment funds are calculated in a manner
consistent with the measurement principles of ASC 946, Investment Companies -
Financial Services. The Company uses the practical expedient to estimate the
fair value of its investments in the underlying investment funds. The
underlying investment funds value securities and other financial instruments at
fair value.
Underlying Investment Funds
The fair value of the underlying investment funds is based on audited net asset
values provided by the relevant administrator or fund manager of the underlying
investment fund.
Foreign currency translation
The Company's reporting currency is Pounds Sterling. Assets and liabilities
originating in non-Pounds Sterling denominated currencies are translated into
Sterling Pounds at the appropriate rates of exchange in effect at the date of
the financial statements. Income and expense transactions originated in
non-Sterling Pounds denominated currencies have been translated into Pounds
Sterling at the prevailing exchange rates on the date of the transaction.
Use of estimates
The preparation of financial statements in accordance with US GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Income taxes
The Company has adopted the authoritative guidance for uncertainty in income
taxes included in FASB ASC 740 Income Taxes, as amended by Accounting Standards
Update ("ASU") 2009-06, Implementation Guidance on Accounting for Uncertainty
in Taxes and Disclosures Amendments for Nonpublic Entities. This guidance
requires the Company to determine whether a tax position of the Company is more
likely than not to be sustained upon examination by the applicable taxing
authority, including the resolution of any related appeals or litigation
processes, based on the technical merits of the position. The tax effect to be
recognised is measured as the largest amount of tax that is greater than fifty
percent likely of being realised upon ultimate settlement, which could result
in the Company recording a tax liability that would reduce net assets. The
Company reviews and evaluates tax positions in its major jurisdictions and
determines whether or not there are uncertain tax positions that require
financial statement recognition. Based on this review, the Company has
determined the major tax jurisdictions as to where the Company is organised and
where the Company makes investments local and foreign, however no reserves for
uncertain tax positions were required to have been recorded as a result of the
adoption of such guidance for any of the Company's open tax years. The Company
is additionally not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognised tax benefits will change
materially in the next twelve months. As a result, no income tax liability or
expense has been recorded in the accompanying financial statements in respect
of these positions.
3. Investments
Investments held by the Company as at 31 December 2011 and 31 December 2010 are
detailed below:
31 December 2011 % of
Fair Company's Primary
Value Net Primary Geographic Redemptions
Investment GBP Assets Disciplines Location Permitted
BlackRock UK Emerging
Companies Hedge Fund
Limited Relative Cayman 60 calendar
- Class I60 GBP Shares 59,092,080 100.02% Value Islands days' notice
Institutional Cash
Series plc
Sterling Liquidity Relative Ireland On any
Fund 37,345 0.06% Value dealing day
---------- -------
Total 59,129,425 100.08%
========== =======
31 December 2010 % of
Fair Company's Primary
Value Net Primary Geographic Redemptions
Investment GBP Assets Disciplines Location Permitted
BlackRock UK Emerging
Companies Hedge Fund
Limited Relative Cayman 60 calendar
- Class I60 GBP Shares 58,534,777 100.18% Value Islands days' notice
Institutional Cash
Series plc
Sterling Liquidity Relative Ireland On any
Fund 40,343 0.07% Value dealing day
---------- -------
Total 58,575,120 100.25%
========== =======
In accordance with the authoritative guidance on fair value measurements and
disclosures under the FASB Accounting Standards codification, the Company
discloses the fair value of its investments in a hierarchal disclosure
framework which prioritises and ranks the level of market price observability
used in measuring investments at fair value. Market price observability is
affected by a number of factors; including the type of investment and the
characteristics specific to the investment. Investments with readily available
active quoted prices or for which fair value can be measured from actively
quoted prices generally will have a higher degree of market price observability
and a lesser degree of judgement used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in
one of the following categories:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices in markets that are not considered to be active for
identical assets or liabilities, quoted prices in active markets for similar
assets or liabilities and inputs other than quoted prices that are directly
observable or indirectly through corroboration with observable market data. If
a reporting entity has the ability to redeem its investment with the securities
at the net asset value per share (or its equivalent) at the measurement date or
within the near term and there are no other liquidity restrictions, the
Company's investment in the securities shall be categorised as a level 2;
Level 3 - Inputs that are both significant to the fair value measurement and
are unobservable, including investment specific inputs that are not derived
from market data and inputs that cannot be corroborated by market data. The
determination of fair value for investments included in the level 3 category
requires considerable subjectivity and estimation. Investments in securities
that are currently subject to liquidity restrictions that will not be lifted in
the near term shall be categorised as a level 3.
The Company's investments in the underlying investment funds are classified
within level 2 of the fair value hierarchy as the value of these interests are
primarily based on the respective net asset value reported by management on
each underlying investment fund's actual market transactions and other
observable market data. The determination of whether or not such an investment
will be classified in level 2 will be based upon the ability to redeem such an
investment within a reasonable period of time (within 90 days of year end). If
an investment may be redeemed within 90 days of the year end and the fair value
of the investment is based on information provided by the underlying fund
management, the investment is classified as level 2.
The following table summarises the valuation of the Company's investments under
the fair value hierarchy levels as at 31 December 2011 and 31 December 2010:
31 December 2011 Level 1 Level 2 Level 3 Total
Fair Value Fair Value Fair Value Fair Value
GBP GBP GBP GBP
Investments in underlying
investment funds - 59,129,425 - 59,129,425
------- ---------- ------- ----------
- 59,129,425 - 59,129,425
======= ========== ======= ==========
31 December 2010 Level 1 Level 2 Level 3 Total
Fair Value Fair Value Fair Value Fair Value
GBP GBP GBP GBP
Investments in underlying
investment funds - 58,575,120 - 58,575,120
------- ---------- ------- ----------
- 58,575,120 - 58,575,120
======= ========== ======= ==========
There were no transfers between level 1 and level 2 during the year ended 31
December 2011 (2010: none). Additionally, there were no level 3 investments
during the year ended 31 December 2011 (2010: none).
4. Derivative instruments
The Company does not hold any derivative contracts at year end (2010: none).
5. Financial instruments with off-balance sheet risk
The Company's investments in the underlying investment funds also involves
varying degrees of credit and counterparty risk, liquidity and market risk,
industry or geographic concentration risks for the Company. While BlackRock
Investment Management (UK) Limited monitors these risks, the varying degrees of
transparency into and potential liquidity of the securities in the underlying
investment funds may hinder their ability to manage and mitigate these risks
effectively.
Credit and counterparty risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
Financial assets, which potentially expose the Company to credit risk, consist
principally of cash due from brokers and receivables for investments sold. The
Company's cash balances are primarily with high credit quality,
well-established financial institutions. The extent of the Company's exposure
to credit risk in respect of these financial assets approximates to their
carrying value as recorded in the Company's statement of assets and
liabilities.
Liquidity and market risk
The Company's UK Emerging Companies Share Class invests only in the UK Emerging
Companies Hedge Fund (the Hedge Fund). Liquidity risk to the Hedge Fund arises
from the redemption requests of investors and the liquidity of the underlying
investments the Hedge Fund is invested in. In some circumstances, investments
held by the Hedge Fund may be relatively illiquid making it difficult or
impossible to acquire or dispose of them at the prices quoted on the various
exchanges or at the prices which the Investment Manager considers to be their
value at that time. Accordingly, the Hedge Fund's ability to respond to market
movements may be impaired and the Hedge Fund may experience adverse price
movements upon liquidation of its investments. Settlement of transactions may
be subject to delay and administrative uncertainties. This lack of liquidity
may affect the liquidity of the Hedge Fund's shares (and, consequently, the
ability of the Company to effect conversions of UK Emerging Companies Shares
into Cash Fund Shares in a timely manner) and the value of its investments.
Management of the risk
Liquidity risk in the Hedge Fund is mitigated by the fact that Hedge Fund
Shares are redeemable only upon at least 60 calendar days' prior written notice
(in the case of the share class held by the Company) to the Administrator. The
Hedge Fund maintains a risk controlled, well diversified portfolio and its
trading securities are considered to be readily realisable as they are listed
on recognisable exchanges. The Hedge Fund also has the ability to borrow in the
short term to ensure settlement.
At the Company level, liquidity risk is managed through the imposition of a 74
day notice period of intention to switch from the UK Emerging Companies Share
Class to the Cash Fund Share Class to enable sufficient time for underlying
portfolio realisations to be made at the Hedge Fund level. The Company also has
a GBP6m borrowing facility which can be utilised to meet short term liquidity
requirements.
6. Share capital, voting rights, share conversion and redemption
Authorised:
Unlimited Shares of any class
31 December 2011
31 December 2011 Number of Shares
Number of Shares UK Emerging
Cash Fund Shares Companies Shares
In issue beginning of year 36,952 47,122,000
Issued during the year - 950,000
------ ----------
In issue end of year 36,952 48,072,000
====== ==========
31 December 2010
31 December 2010 Number of Shares
Number of Shares UK Emerging
Cash Fund Shares Companies Shares
In issue beginning of period - -
Issued during the period 3,307,154 49,929,200
Redeemed during the period (3,270,202) (2,807,200)
---------- ----------
In issue end of period 36,952 47,122,000
====== ===========
The shares are issued in the form of redeemable participating shares in order
to provide flexibility to the Directors in relation to the conversion,
repurchase and redemption of the shares. Shareholders have no right to have
their shares redeemed.
Shares are not redeemable at the option of the holder of such shares. However,
the Company may from time to time, at the absolute discretion of the Directors,
invite Shareholders to request the redemption of the whole or any number of
shares comprised in their holdings of shares. The manner in which any such
redemptions will be conducted and the terms applicable to any such redemption
shall be determined by the Directors in their absolute discretion. In addition
to this, and as described in the Chairman's Statement and in the Directors'
Report on page 16 of the Annual Report, the Company's Articles of Association
provide a Cash Exit Mechanism, such that holders controlling in excess of
two-thirds of the issued shares of any class may require the Directors to
provide them with the opportunity to dispose of such shares for net asset value
less disposal costs. The Articles also provide an additional discount control
mechanism whereby shareholders have the opportunity to dispose of shares at Net
Asset Value less costs if at any time the average discount over a rolling 6
month period is in excess of 5%.
In addition the Company's authorised share capital includes 100 management
shares of no par value, of which 2 management shares have been issued.
Management shares carry no right to distribution of profits, or except when
there are no shares in issue, to receive notice of or vote at general meetings
of the Company.
Dividend policy
The Directors do not expect to declare any dividends in respect of the UK
Emerging Companies Shares. The Company's policy is to distribute all net income
received by it in respect of the assets attributable to the Cash Fund Shares
during the relevant period around 31 March, 30 June, 30 September and 31
December in each year, but to date, no distributions have been made due to the
de minimis value of distributable income.
Voting rights
As at 31 December 2010, holders of Cash Fund Shares and UK Emerging Companies
Shares were each, on a vote taken on a show of hands and on a poll, entitled to
one vote per UK Emerging Companies Shares and one vote per Cash Fund Share.
On 1 January 2011, the voting rights were recalculated in accordance with the
provisions of the Articles of Association of the Company and the UK Emerging
Companies Shares' voting rights changed to 1.2 voting rights per share. The
voting rights are recalculated annually, and were recalculated again on 1
January 2012. Further to the second rebalancing of voting rights, the UK
Emerging Companies Shares continue to hold 1.2 voting rights per share. The
Cash Fund Shares continue to have one voting right per share.
Subject to any special terms as to voting upon which any shares may be issued
or may for the time being be held, at any general meeting on a show of hands
every holder of shares who (being an individual) is present in person or (being
a corporation) is present by duly authorised representative shall have one
vote. On a poll every such holder present as aforesaid or by proxy shall have
one vote for every Cash Fund Share held and 1.2 votes for every UK Emerging
Companies Share held.
7. Management and performance fees
No investment management or performance fees will be payable directly by the
Company to the Manager or the Investment Manager. Holders of each class of
shares will indirectly bear the Company's pro rata share of the fees charged
and expenses borne at the level of the Hedge Fund and the Liquidity Fund.
The underlying Investment Manager will receive from the UK Emerging Companies
Hedge Fund Limited (a) an investment management fee equal to 1/12 of 1.75 per
cent per month of the aggregate net asset value of the class of shares in the
UK Emerging Companies Hedge Fund Limited held by the Company payable monthly in
arrears and (b) a performance fee from the Hedge Fund calculated on a
share-by-share basis so that each share in the Hedge Fund held by the Company
will be charged a performance fee which equates precisely with that share's
performance.
The performance fee will be calculated in respect of each period of twelve
months ending on 30 September in each year (a "Calculation Period"). For each
Calculation Period, the performance fee in respect of each share held by the
Company will be equal to 20 per cent. of the appreciation in the net asset
value per share during that Calculation Period above the "base" net asset value
of such share. The base net asset value of such share is the greater of the net
asset value of such share at the time of issue of that share and the highest
net asset value per share of the class of shares in the Hedge Fund held by the
Company achieved as of the end of any previous Calculation Period (if any)
during which such share was in issue.
Annual expenses associated with the Liquidity Fund, which includes the fees and
expenses of the Liquidity Fund Manager and underlying Investment Manager, are
limited to 1 per cent. per annum of the aggregate net asset value of the shares
of the Institutional Sterling Liquidity Fund or to such lesser amount as the
underlying Fund Manager may agree. Currently, the Liquidity Fund Manager has
agreed that such annual expenses will be capped at 0.20 per cent. per annum of
the aggregate net asset value of the shares of the Liquidity Fund.
8. Fees and expenses
Fees payable to the Sub-Administrator, Custodian and other ongoing operational
expenses payable by the Company are estimated to be 0.50 per cent. per annum of
the Company's Net Asset Value and comprise items including:
(1) fees payable to the Sub-Administrator (in respect of the services of both
the Sub-Administrator and the Custodian) of GBP50,000 (31 December 2010: GBP
62,603);
(2) fees payable to the Auditor of GBP12,000 (31 December 2010: GBP13,500); and
(3) other operational expenses of GBP150,943 (31 December 2010: GBP156,812).
As at 31 December 2011, the sub-administration fees payable were GBP33,562 (31
December 2010: GBP29,315).
Holders of each class of shares will indirectly bear the Company's pro rata
share of the fees charged and expenses borne at the level of the underlying
investment Fund.
9. Related party transactions
As at 31 December 2011, Mr. Frank Le Feuvre held 100,000 shares in the UK
Emerging Companies Share Class (31 December 2010: 100,000 shares). Mr Ruck
Keene held 309.3219 shares in the BlackRock UK Emerging Companies Hedge Fund.
The total amount paid to Directors was GBP72,000 for the year ended 31 December
2011 (period ended 2010: GBP85,000). This amount comprised remuneration of GBP
68,000 (2010: GBP80,000) and also reimbursement for travel and other
out-of-pocket expenses relating to attendance at meetings and other matters
amounting to GBP4,000 (2010: GBP5,000).
Mr. Frank Le Feuvre and Mr. Jonathan Ruck Keene are Directors of the Company
and are also employees of the Manager and the Investment Manager respectively.
Mr. Le Feuvre is a director of a number of other BlackRock Funds including the
BlackRock UK Emerging Companies Hedge Fund. Mr Ruck Keene is a director of a
number of BlackRock listed closed end funds.
Details of fees paid to the Investment Manager are disclosed in Note 7.
The Company invests into the Hedge Fund and the Liquidity Fund which are also
managed by BlackRock.
10. Recent accounting pronouncements
In April 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2011-03 "Reconsideration of Effective
control for Repurchase Agreements". The objective of ASU 2011-03 is to improve
the accounting for repurchase agreements and other agreements that both entitle
and obligate a transferor to repurchase or redeem financial assets before their
maturity. Under previous guidance, whether or not to account for a transaction
as a sale was based on, in part, if the entity maintained effective control
over the transferred financial assets. ASU 2011-03 removes the transferor's
ability criterion from the effective control assessment. This guidance is
effective prospectively for interim and annual reporting periods beginning on
or after 15 December 2011. At this time, management is evaluating the
implications of ASU No. 2011-03 and its impact on the financial statements has
not been determined.
In June 2011, the FASB issued Accounting Standards Update No. 2011-04,
"Amendments to achieve common Fair Value Measurements and Disclosure
Requirements in U.S. GAAP and IFRSs". The ASU amends ASC 820 (SFAS 157) and
requires a number of additional disclosures regarding fair value measurements.
Specifically the ASU requires entities to disclose: (a) the amounts of any
transfers between level 1 and level 2 of the fair value hierarchy and the
reasons for those transfers; (b) quantitative information about the significant
unobservable inputs used in measuring level 3 assets and liabilities and; (c) a
description of the valuation processes used in valuing level 3 assets and
liabilities. Entities are required to adopt the standard for annual reporting
periods beginning after 15 December 2011.
11. Subsequent events
Management has evaluated the impact of all material subsequent events on the
Company to 24 April 2012, the date the financial statements were issued, and
has determined that there were no material subsequent events requiring
adjustment or disclosure in the financial statements.
On 20 January 2012 the Company announced that holders of 20,000 UK Emerging
Companies Shares had elected to convert into Cash Fund Shares at the 31 March
2012 conversion date. The conversion ratio was calculated based on the UK
Emerging Companies NAV at 31 March of 125.261p less associated conversion
costs, dividend by the net asset value of the Cash Fund Shares of 101.780p at
31 March 2012. The conversion was completed on 12 April 2012 and resulted in
the issue of 24,245 Cash Fund shares. The deadline for the June 2012 conversion
date expired on 18 April 2012 and no conversion elections were received. Other
than changes to the Company's share capital as a result of this conversion, the
Company did not issue or buy back any shares from 1 January 2012 to the date of
these financial statements.
On 1 January 2012, the voting rights were recalculated in accordance with the
provisions of the Articles of Association of the Company and the UK Emerging
Companies Shares continue to have 1.2 voting rights per share. The Cash Fund
Shares continue to have one vote per share.
The deadline for the June 2012 Conversion expired on 18 April 2012 and the
Company received elections in respect of 1,526,000 UK Emerging Companies Shares
which will be converted into Cash Fund Shares. Conversion will occur shortly
after the Share Conversion Date of 30 June 2012 or shortly following receipt by
the Company of the proceeds of redeeming its shares in the underlying fund.
12. Annual General Meeting
The Annual General Meeting of the Company will be held at 4th Floor, One
Waverley Place, Union Street, St Helier, Jersey, Channel Islands, JE1 0BR on
Tuesday, 3 July 2012 at 12.00 noon.
13. Annual Report
Copies of the annual report and financial statements will be posted to
shareholders as soon as practicable. Copies will also be available from the
Company's registered office at 4th Floor, One Waverley Place, Union Street, St
Helier, Jersey, Channel Islands JE1 0BR.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at www.blackrock.co.uk/brhs under the Literature section. Neither the
contents of the Investment Manager's website nor the contents of any website
accessible from hyperlinks on the Investment Manager's website (or any other
website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Jonathan Ruck Keene, Chairman, Specialist Client Group,
BlackRock Investment Management (UK) Limited
Tel: 020 7743 2178
Emma Phillips, Media & Communication,
BlackRock Investment Management (UK) Limited
Tel: 020 7743 2922
Ed Bellew, BlackRock (Channel Islands) Limited, Company Secretary
Tel: 01534 600806
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