BLACKRK HDGE UK RED PART SHS NPV (UK EMERGING CO SHS)
BlackRock Hedge Selector Ltd
Half Yearly Financial Report 30 June 2014
A MEMBER OF THE ASSOCIATION OF INVESTMENT COMPANIES
Details about the Company are available on the BlackRock Investment Management
(UK) Limited website at www.blackrock.co.uk/brhs
Summary
Structure
BlackRock Hedge Selector Ltd (the "Company") was incorporated in Jersey on 17
August 2009 under the Companies (Jersey) Law 1991 as a limited liability
registered closed-ended investment company. The Company currently has one class
of shares in issue, the UK Emerging Companies Shares, which were listed on the
London Stock Exchange on 28 September 2009.
Investment policy
The investment policy of the Company is to provide investors with a choice of
investment mandates represented by different share classes, each intended to
provide a specific investment exposure to an underlying fund managed by
BlackRock Investment Management (UK) Limited ("BlackRock") and its affiliates.
Further, the Company's policy in respect of each share class is to invest in
each underlying fund on the basis that each underlying fund will be managed so
as to spread investment risk.
At present the Company only has one class of Feeder Fund shares in issue, the
UK Emerging Companies Share Class, which provides investors with exposure to
the performance of the BlackRock UK Emerging Companies Hedge Fund Limited ("the
Hedge Fund"), a Cayman Islands domiciled fund managed by BlackRock. There is a
quarterly redemption mechanism in place for up to 20% of the Company's UK
Emerging Companies Shares (to be implemented at the Directors' discretion)
Investment objective
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 by maintaining a short portfolio.
Performance record
UK Emerging Companies Shares
As As As
at at at
30 30 31
June June December
2014 2013 2013
Share price 130.50p 130.75p 138.00p
Net Asset Value per share 129.46p 133.16p 140.25p
Premium/(discount) 0.8% (1.8%) (1.6%)
======== ======== ========
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013
Share price performance (5.4%) 4.0% 9.7%
NAV performance* (7.7%) 3.8% 9.3%
UK Emerging Companies Hedge Fund (7.3%) 4.1% 10.0%
FTSE All-Share Total Return Index 1.6% 8.5% 20.8%
FTSE 100 Total Return Index 1.9% 7.6% 18.7%
FTSE 250 Total Return Index 0.0% 13.2% 32.3%
FTSE Small Cap Total Return Index 1.5% 13.1% 32.8%
Numis Smaller Companies +AIM (ex IC) Index (0.8%) 9.0% 30.9%
======== ======== ========
*The Hedge Fund's investment objective 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 Hedge Fund does not have a
benchmark, and the FTSE indices given above have been included to provide
background context and should not be viewed as benchmark indices for the
Company or the Hedge Fund.
Chairman's statement
for the six months to 30 June 2014
Performance
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. Over the six months to 30 June 2014,
the Company's UK Emerging Companies Share Class NAV fell by 7.7% (including all ongoing
expenses with ongoing charges of approximately 0.8% per annum), reflecting the underlying
performance of the UK Emerging Companies Hedge Fund ("the Hedge Fund") which fell by 7.3%.
The Company's share price fell by 5.4% over the same period.
This performance was set against a climate in which equity markets continued to
make gains, entering a fifth year of consecutive growth, albeit marked by a
higher degree of volatility over recent months. The FTSE 100 Index rose by 1.9%
over the period, the FTSE Small Cap Index increased by 1.5% and the FTSE
All-Share Index by 1.6%. In contrast, the Numis Smaller Companies plus AIM
(excluding investment companies) Index fell by 0.8% and the FTSE 250 Index
remained flat (all calculations on a sterling, total return basis).
Against this backdrop, the Hedge Fund's performance was disappointing with the
long portfolio contributing most significantly to the negative returns. The
Manager is confident that the investment strategy's bias for higher quality
companies should deliver returns over the longer term, but a combination of
exceptional market conditions over the period under review has meant that on
balance, the quality companies in the portfolio fell, underperforming lower
quality "value" stocks. This, combined with a sharp reversal in share price
momentum, has impacted performance. Further details in respect of the Hedge
Fund's performance are given in the Manager's report.
Since the period end and based on the latest available NAV as at 22 August 2014, the
Company's UK Emerging Companies Share Class NAV has increased by 1.6%. The share price
as at the date of this report has fallen by 4.2% resulting in the shares trading at a
5.0% discount to NAV at the time of writing. Additional information on the performance
of the Hedge Fund NAV on a month by month basis is given in the Investment Manager's Report.
Discount Control Mechanism ("DCM")
The Company operates a quarterly Redemption Facility for up to 20% of the
Company's issued UK Emerging Companies Shares, at NAV less redemption costs.
Redemptions are implemented at the discretion of the Directors, who are minded
to exercise their discretion to proceed to the extent that the Company's shares
have been trading on average at a discount over the relevant quarter.
The March 2014 Redemption Facility was undersubscribed, with holders of 112,277
UK Emerging Companies Shares electing to participate (0.4% of the UK Emerging
Companies Share Class). Proceeds based on a Redemption NAV of 137.188p per
share were paid to redeeming shareholders on 16 April 2014. For the June 2014
Redemption, the Company's UK Emerging Companies Shares had traded at an average
premium of 0.4% for the three months ended 31 March 2014, and consequently the
Directors decided not to implement the redemption facility for the June
quarter. For the September 2014 discount calculation period (1 April 2014 to 30
June 2014), the Company's UK Emerging Companies Shares traded at an average
premium of 0.9%, and once again the Directors exercised their discretion not to
implement the Redemption Facility.
The Board believes that the DCM has had a beneficial effect on the Company's
share rating, which improved following its introduction in April 2013 to the
extent that the Company's UK Emerging Companies Shares have traded mainly at a
premium from January 2014 to 30 June 2014. The trend for the shares to move to
trade at a premium during the period uder review enabled the Company to issue
shares, and more details of these transactions are given below. Since the period
end, reduced liquidity in the markets has seen trading volumes fall significantly
in June, July and August; this has had an impact on the share rating, with shares
trading at an average discount of 1.5% for the period since 30 June to the date of
this report. At the date of this report, the discount stood at 5.0%
Share issues and share conversions
In the light of the continuing demand for the Company's Shares and having
regard to the benefits of enlarging the Company, the Board sought shareholder
approval for the ability to allot up to 30% of the UK Emerging Companies Shares
in issue with pre-emption rights dis-applied. This proposal was approved at the
Company's AGM on 26 June 2014, and will enable the Company to issue further
shares at a premium to NAV with the aim of improving market liquidity and
reducing the expense ratio per share without existing investors suffering NAV
dilution. In the period under review, the Company issued 50,000 shares out of
treasury on 21 March 2014 for consideration of £70,000, and a further 100,000
shares under its block listing authority on 19 June 2014 for consideration of
£130,600. Both share issues were made at a premium to NAV after taking into
account transaction costs. The Company also cancelled 300,545 shares held in
treasury with effect from 16 January 2014. As at 30 June 2014 the Company had
in issue 25,975,228 UK Emerging Companies Shares, excluding 2,543,750 shares
held in treasury.
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.
Return and dividends
The Directors do not propose the payment of any dividends in respect of the UK
Emerging Companies shares.
Outlook
The global economic recovery remains on track for low but slow growth. However
markets fell in July on the back of geopolitical concerns, notably heightened
unrest in Gaza and the implementation of sanctions by the US and Europe
targeting key elements of the Russian economy. Economic data in Europe remains
disappointing and appears to be stabilising in China, while in the US, the
Federal Reserve is scheduled to end its QE `taper' this year. In the UK, the
economy continues to progress with broad based positive growth, though some
investors are uncertain whether the recovery is sustainable enough to withstand
an increase in interest rates. The US and the UK are therefore closer to
entering a monetary tightening phase which, while usually constructive for
equities historically, should also result in increasing volatility for the
asset class. In such a world of low but acceptable growth, investors should
become increasingly discerning and companies that can deliver higher quality
growth will be most in demand. The Hedge Fund's quality bias is well positioned
to be attractive to investors in this environment.
Howard Myles
Chairman
28 August 2014
Interim management report and responsibility statement
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into the following
areas:
Performance;
Regulatory;
Market;
Operational;
Counterparty; and
Financial.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the period ended 31
December 2013. A detailed explanation can be found on pages 14 and 15 of the
Annual Report and Financial Statements which are available on the website
maintained by the Investment Manager, BlackRock Investment Management (UK)
Limited, at blackrock.co.uk/brhs.
In the view of the Directors, there have not been any significant changes to the
fundamental nature of these risks since the previous report and the principal
risks and uncertainties as identified above are equally applicable to the
remaining six months of the financial period as they were to the six months
under review.
Further information is given in relation to market and credit risk in note 5 of
the half yearly financial report.
Going Concern
The Directors are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Company also has in place a £3.3 million overdraft facility that can be
used to provide working capital if required. For this reason, they continue to
adopt the going concern basis in preparing the financial statements. The
Company is able to meet all of its liabilities from its assets and the ongoing
charges are approximately 0.8% of the net assets.
Related party transactions
The Directors, the Manager and the Investment Manager are regarded as related
parties; there have been no related party transactions requiring disclosure in
the period under review other than those related party transactions that are
set out in notes 7, 9 and 10.
Directors' responsibility statement
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
the set of financial statements contained within the half yearly financial
report has been prepared in accordance with accounting principles generally
accepted in the United States of America and give a true and fair view of the
assets, liabilities, financial position and statement of operations of the
Company; and
the half yearly financial report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.
The half yearly financial report has not been audited or reviewed by the
Company's auditors. The half yearly financial report was approved by the Board
on 28 August 2014 and the above responsibility statement was signed on its
behalf by the Chairman.
Howard Myles
For and on behalf of the Board
28 August 2014
Investment manager's report
Performance Summary
The BlackRock UK Emerging Companies Hedge Fund regrettably experienced a
negative return of 7.3% (net, GBP) in the six months to 30 June 2014. The
strategy has always maintained a bias for higher quality companies over lower
quality to deliver positive absolute returns over the longer term but a confluence
of exceptional market conditions shaped the disappointing six month return. In
addition to some negative stock selection outcomes from the long book, a prolonged
run of value outperforming quality combined with a sharp reversal in share price
momentum contributed in delivering this adverse return. On a gross basis, the
performance outcome was the result of the long book detracting 7.3%, while the
short book detracted 0.5%.
Market Review
After a strong 2013, global large cap equity markets have registered further
modest gains in 2014, albeit with increased volatility. The US Federal Reserve
has continued to `taper' Quantitative Easing ("QE") in line with the strengthening
US economy, with arguably better improvement in the UK, where growth has surprised to
the upside. Chinese economic data remained weak relative to its own history though
it appears to be stabilising. From March onwards, market leadership rotated significantly
with a sharp reversal in both price and size momentum - the most obvious feature being the
marked outperformance of the FTSE 100 Index over the FTSE 250 Index. Economic data from
Europe continued to be patchy but the ECB is now primed to embark upon its own path of
targeted money printing to boost lacklustre growth and counter deflationary risks.
Performance and Activity
At the start of the year the Hedge Fund was positioned to benefit from a
continuation of strong trading patterns from various domestic UK businesses and
a recovery in global business confidence. In a broad sense both of these
positive dynamics have happened, yet strong or improving fundamentals have not
been transmitted into the share price performance of the Hedge Fund's
underlying positions, most notably our long holdings in the FTSE 250 Index. The
external factors which have driven the sharp underperformance of the FTSE 250
Index versus FTSE 100 Index have been firstly, an extreme unwind of positions
by non–traditional investors leading to forced selling and a de-rating of
quality growth and secondly, a reappraisal of the relative interest rate
expectations in the UK and US which has marred sentiment towards UK domestics
as well as UK exporters as Sterling has appreciated. A sector and momentum
rotation of such magnitude is unprecedented in the Hedge Fund's 10 year
history. The corollary of quality growth underperforming has been low quality
or value outperforming and it is for this reason that the short book has not
compensated the long book. Perceived defensiveness or simply lower valuations
of various positions within the short book have in many instances prevented these
share prices from reacting negatively to bad or deteriorating news. In addition
to these adverse style factors, stock specific issues have also contributed to the
negative performance. Key detractors in the period actually featured several holdings
which had been very strong contributors to performance in recent years such as Blinkx,
Xaar, Oxford Instruments and ITE Group. Blinkx suffered from a negative blog article
which questioned the company's business practices and led to a very sharp fall in the
company's share price. Although the company was able to refute these claims, irreparable
reputational damage has been done and we have exited from our position. Xaar
was also a victim, although in this instance it was its own spectacular success
in pioneering the use of digital inkjet print heads in the ceramic tile market
that has resulted in new competition and ultimately price pressure for Xaar.
Oxford Instruments has seen its earnings disproportionally impacted by the
strength of Sterling whilst ITE Group has suffered from the ongoing
confrontation between Ukraine and Russia and the uncertainty that brings. The
best performing positions were all in the long book and included Ashtead,
Rathbone Brothers and Zotefoams. As the market environment changed, action was
taken to moderate both the gross and net bias of the Hedge Fund and they
finished the period at 150% and 27% respectively. Likewise from a size
positioning perspective, portfolio activity during the period led to a
reduction of large cap positions in the short book.
Outlook
Recent economic data and indeed the fact that we are now closer to entering a
monetary tightening phase in the UK and US paints a backdrop of improving
business fundamentals which should be positive for equities. We take comfort
in stabilising growth rates in China and although the path to recovery in
Europe remains less certain, the ECB now has a mandate to implement its own
version of QE. Equity valuations are fair, corporate balance sheets are
exceptionally strong and cross border M&A activity is picking up. We continue
to be resolute in our belief that the economic recovery from the financial
crisis results in a world of low but acceptable growth. In such a world,
investors will become increasingly discerning and companies that can deliver
higher quality growth will be most in demand.
Richard Plackett and Ralph Cox*
BlackRock Investment Management (UK) Limited
28 August 2014
* The Board of BHS Ltd announced on 4 March 2014 that Ralph Cox, co-manager of the Hedge
fund since launch in May 2004, would assume full responsibility for managing the Hedge
fund while Richard Plackett, co-manager completes a six month sabbatical to commence on
1 April 2014.
BlackRock UK Emerging Companies Hedge Fund
Monthly Performance Summary since inception
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
January - 1.13 4.89 1.09 0.74 1.40 1.93 0.52 0.40 0.52 (0.91)
February - 1.02 1.87 1.65 5.82 (1.01) (1.10) 1.11 1.88 1.72 0.93
March - 0.59 1.12 0.47 1.72 (1.76) 0.26 0.35 (0.21) 0.81 (1.36)
April - 1.12 2.12 1.50 2.25 0.60 1.76 0.51 1.92 (0.04) (2.85)
May 3.22 0.50 (3.26) 1.27 4.18 0.31 (1.10) (0.38) (2.14) 2.04 (1.84)
June 4.07 1.98 (0.67) 0.55 5.62 (0.48) 0.26 (0.33) (0.50) (0.98) (1.49)
July 5.79 3.03 0.03 0.35 1.39 1.98 4.56 0.29 0.96 0.99 -
August 2.53 1.83 1.06 1.19 (1.69) 2.65 0.04 (2.25) 0.90 (0.21) -
September 1.20 2.59 1.44 2.33 (2.40) 1.96 5.82 (0.67) 0.93 (0.35) -
October 2.48 (2.45) 3.06 1.17 (1.42) (0.46) 1.26 0.93 (0.52) 1.27 -
November 1.25 3.17 2.33 0.19 1.79 (0.76) 1.52 (0.43) 0.34 1.76 -
December 2.31 2.36 2.69 0.77 0.29 1.57 4.23 0.04 0.99 2.06 -
Year to
date 26.30 18.09 17.73 13.25 19.44 6.05 25.32 (0.36) 5.00 9.96 (7.32)
Source: BlackRock.
Returns since inception on 4 May 2004 to 30 June 2014
Cumulative 236.62%
Annualised 12.68%
Current net asset value: US$621m
========
Risk Statistics since inception on 4 May 2004 to 30 June 2014 %
Annualised volatility 6.09
Correlation1* 0.43
Beta*2 0.15
Sharpe Ratio*3 1.49
========
* as measured against the Numis Smaller Companies +AIM (excluding
Investment Companies) Index
Source: BlackRock.
1 Correlation is a statistical measure of how two securities move in
relation to each other. Correlation is computed into what is known as
the correlation coefficient, which ranges between -1 and +1. Perfect
positive correlation (a correlation coefficient of +1) implies that as
one security moves, either up or down, the other security will move in
the same direction. Alternatively, perfect negative correlation means
that if one security moves in either direction the security that is
perfectly negatively correlated will move in the opposite direction. If
the correlation is 0, the movements of the securities are said to have no
correlation; they are independent. Correlation measures direction but does
not measure magnitude; for example if the market is always up 10% and a stock
is always up 20%, the correlation is 1. An additional measure that incorporates
both direction and magnitude is Beta, explained in more detail in footnote 2 below.
2 Beta is a measure of the systematic, non-diversifiable risk of an investment,
and describes the relation of the portfolio’s returns with those of the financial
market as a whole. A portfolio has a Beta of zero if its returns change independently
of changes in the market’s returns. A positive Beta means that the portfolio’s returns
have a degree of correlation to the market’s returns. A negative Beta means that the
portfolio’s returns are negatively correlated to the market’s returns. As well as
direction, Beta also incorporates a measure of magnitude; for example if the market
is always up 10% and a stock is always up 20%, the Beta would be 2.
3 The Sharpe ratio indicates whether a portfolio’s returns are due to effective
investment decisions or a result of excess risk. This measurement is useful because
although one portfolio or fund can reap higher returns than its peers, it is only a
good investment if those higher returns do not come with too much additional risk.
The greater a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been.
A negative Sharpe ratio indicates that a risk-less asset would perform better than the
security being analysed.
MARKET CAPITALISATION BREAKDOWN - 30 JUNE 2014
Long Positions Short Positions
% %
0 to 0.1bn 3.8 -0.7
0.1 to 0.25bn 13.2 -1.7
0.25 to 0.5bn 13.6 -6.4
0.5 to 1bn 18.8 -13.4
1 to 3bn 32.9 -19.6
3bn+ 6.1 -15.1
Index 0.0 -3.7
Source: BlackRock.
SECTOR BREAKDOWN - 30 JUNE 2014
Long Positions Short Positions
% %
Basic Materials 9.3 -2.0
Consumer Goods 5.7 -5.9
Consumer Services 13.7 -14.1
Financials 11.8 -5.3
Healthcare 1.8 -1.8
Industrials 35.1 -20.6
Oil & Gas 3.3 -2.1
Technology 7.7 -4.1
Telecommunications 0.0 -0.9
Utilities 0.0 0.0
Index 0.0 -3.7
Source: BlackRock.
Statement of assets and liabilities
as at 30 June 2014
Notes 30 30 31
June June December
2014 2013 2013
£ £ £
(unaudited) (unaudited) (audited)
Assets
Investments at fair value (cost
30 June 2014: £25,530,401/30 June
2013: £41,527,589/ 31 December 2013
: £28,664,056) 3 33,519,658 56,154,349 40,701,860
Cash and cash equivalents 415,861 272,218 56,051
Other assets - 1,013 -
-------- -------- --------
33,935,519 56,427,580 40,757,911
-------- -------- --------
Liabilities
Creditors, accounts payable and
accrued expenses 8 308,003 483,814 165,176
-------- -------- --------
Net assets 33,627,516 55,943,766 40,592,735
======== ======== ========
UK EMERGING COMPANIES SHARES
Note 30 30 31
June June December
2014 2013 2013
Net asset value per share (unaudited) (unaudited) (audited)
Net asset value £33,627,516 £55,943,766 £40,592,735
Shares in issue 6 25,975,228 42,012,922 28,942,959
NAV per share 129.46p 133.16p 140.25p
======== ======== ========
Schedule of investments
as at 30 June 2014
30 30 30 30 31 31
June June June June December December
2014 2014 2013 2013 2013 2013
fair percentage fair percentage fair percentage
value of value of value of
net net net
assets assets assets
Investments at fair £ % £ % £ %
value
Underlying
Investment Funds 33,519,658 99.68 56,154,349 100.38 40,701,860 100.27
Cayman Islands
Open-ended Investment Company
BlackRock UK Emerging Companies
Hedge Fund Limited - Class I60 £ Shares
(Cost 30 June 2014:£25,530,401)
(Cost 30 June 2013:£41,527,589)
(Cost 31 December 2013: £28,664,056)
-------- -------- -------- -------- -------- --------
Total Underlying 33,519,658 99.68 56,154,349 100.38 40,701,860 100.27
Investment Funds
(Cost 30 June 2014:£25,530,401)
(Cost 30 June 2013:£41,527,589)
(Cost 31 December 2013: £28,664,056)
-------- -------- -------- -------- -------- --------
Cash and cash
equivalents and
other assets 415,861 1.24 273,231 0.49 56,051 0.14
Liabilities (308,003) (0.92) (483,814) (0.87) (165,176) (0.41)
-------- -------- -------- -------- -------- --------
Net assets 33,627,516 100.00 55,943,766 100.00 40,592,735 100.00
======== ======== ======== ======== ======== ========
Statement of operations
for the six months ended 30 June 2014
Notes Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013 £
£ £ (audited)
(unaudited) (unaudited)
Income
Interest - 1,973 1,973
Other income - 569 569
-------- -------- --------
- 2,542 2,542
-------- -------- --------
Expenses
Directors' fees 8 33,721 33,721 68,000
Sub-Administration fees 8 25,000 25,260 50,260
Brokerage charges 8 17,356 17,356 51,409
Audit fees 8 5,074 6,429 9,765
Other expenses 8 62,679 119,575 151,260
-------- -------- --------
143,830 202,341 330,694
-------- -------- --------
Net investment loss (143,830) (199,799) (328,152)
-------- -------- --------
Net realised gain on the sale of
underlying investment funds 1,394,746 824,914 5,616,172
Net change in unrealised gain on
holdings in underlying investment
funds (4,048,547) 1,393,631 (1,195,325)
-------- -------- --------
Net realised and change in
unrealised gain on underlying
investment funds (2,653,801) 2,218,545 4,420,847
-------- -------- --------
Net (decrease)/increase in net
assets resulting from operations (2,797,631) 2,018,746 4,092,695
======== ======== ========
Statement of changes in net assets
for the six months ended 30 June 2014
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013 £
£ £ (audited)
(unaudited) (unaudited)
Net assets, beginning of period/year 40,592,735 61,174,144 61,174,144
-------- -------- --------
Net increase in net assets:
From operations
Net investment loss (143,830) (199,799) (328,152)
Net realised gain on the sale of
underlying investment funds 1,394,746 824,914 5,616,172
Net change in unrealised gain on holdings
in underlying investment funds (4,048,547) 1,393,631 (1,195,325)
-------- -------- --------
(2,797,631) 2,018,746 4,092,695
-------- -------- --------
From capital transactions
Subscription of UK Emerging Companies
Shares 200,600 - -
Subscription of UK Emerging Companies
Shares arising from Compulsory Conversion - 31,358 31,358
Redemption of Cash Fund Shares arising - (31,583) (31,583)
from Compulsory Conversion
Subscription of Cash Fund Shares arising
from Quarterly Conversion Facility - 3,430,401 3,430,401
Redemption of UK Emerging Companies
Shares arising from Quarterly Redemption
Facility (4,368,188) - (17,424,981)
Redemption of UK Emerging Companies
Shares arising from Quarterly Conversion
Facility - (3,431,945) (3,431,945)
Redemption of Cash Fund Shares arising
from Cash Exit opportunity - (7,247,355) (7,247,354)
-------- -------- --------
(4,167,588) (7,249,124) (24,674,104)
-------- -------- --------
Net assets, end of period/year 33,627,516 55,943,766 40,592,735
======== ======== ========
Statement of cash flows
for the six months ended 30 June 2014
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013 £
£ £ (audited)
(unaudited) (unaudited)
Cash flows from operating activities
Net (decrease)/increase in net assets
resulting from operations (2,797,631) 2,018,746 4,092,695
Adjustments to reconcile net (decrease)/
increase in net assets resulting from
operations to cash provided by operating
activities:
Net realised gain on underlying
investment funds (1,394,746) (824,914) (5,616,172)
Net change in unrealised gain on
underlying investment funds 4,048,547 (1,393,631) 1,195,325
Purchases of investments - (3,430,970) (3,430,969)
Sales of investments 4,528,401 10,748,727 28,403,517
Decrease in interest receivable on cash - 1,093 1,093
Decrease in other assets - - 1,013
Increase/(decrease) in creditors,
accounts payable and accrued expenses 142,827 191,077 (129,330)
-------- -------- --------
Net cash provided by operating activities 4,527,398 7,310,128 24,517,172
-------- -------- --------
Cash flows from financing activities
Proceeds from issue of shares 200,600 3,461,759 -
Payments for redemption of shares (4,368,188) (10,710,883) (24,672,335)
-------- -------- --------
Net cash used in financing activities (4,167,588) (7,249,124) (24,672,335)
-------- -------- --------
Increase/(decrease) in cash and cash
equivalents 359,810 61,004 (155,163)
Cash and cash equivalents
Beginning of the period/year 56,051 211,214 211,214
-------- -------- --------
End of the period/year 415,861 272,218 56,051
======== ======== ========
Financial highlights
for the six months ended 30 June 2014
UK EMERGING COMPANIES SHARES
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013 p
p p (audited)
(unaudited) (unaudited)
Per share operating performance:
Net asset value, beginning of period/year 140.25 128.30 128.30
-------- -------- --------
(Decrease)/increase in net assets
resulting from operations
Net investment loss (0.55) (0.42) (0.82)
Net realised and change in unrealised
gain on underlying investment funds (10.24) 5.28 12.77
-------- -------- --------
Total from investment operations (10.79) 4.86 11.95
-------- -------- --------
Net asset value, end of period/year 129.46 133.16 140.25
-------- -------- --------
Total return1 (7.7%) 3.8% 9.3%
-------- -------- --------
Ratios/supplemental data:
Net assets, end of period/year £33,627,516 £55,943,766 £40,592,735
-------- -------- --------
Ratio of expenses to average net assets2 (0.8%) (0.6%) (0.6%)
-------- -------- --------
Ratio of net investment loss to average
net assets2 (0.8%) (0.6%) (0.6%)
======== ======== ========
1 Total return is not annualised and is calculated for the relevant period/
year. An individual shareholder's return may vary from this return due to
timing of investments.
2 Ratios have been annualised. The ratios have been calculated for the class
as a whole.
CASH FUND SHARES
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
2014 2013 p
p p (audited)
(unaudited) (unaudited)
Per share operating performance:
Net asset value, beginning of period/year n/a 99.85 99.85
-------- -------- --------
Change in net assets resulting from
operations
Net investment loss n/a (0.32) (0.32)
Net change in unrealised gain on
underlying investment funds n/a 0.32 0.32
-------- -------- --------
Total from investment operations n/a (0.00) -
-------- -------- --------
Net asset value, end of period/year3 n/a 99.85 99.85
-------- -------- --------
Total return1 n/a 0.0% 0.0%
-------- -------- --------
Ratios/supplemental data:
-------- -------- --------
Net assets, end of period/year n/a - -
-------- -------- --------
Ratio of expenses to average net assets2 & 3 n/a (2.1%) (0.4%)
-------- -------- --------
Ratio of net investment loss to average
net assets2 & 3 n/a (1.9%) (0.3%)
======== ======== ========
1 Total return is not annualised and is calculated for each class of shares for
relevant period/year. An individual shareholder's return may vary from this
return due to timing of investments.
2 Ratios have been annualised. The ratios have been calculated for the class
as a whole.
3 The final Net Asset Value for the Cash Fund Shares was issued on 31 January
2013, and final distributions were made to Cash Fund Shareholders on 11
February 2013. All the costs associated with the Cash Exit were borne by the
existing Cash Fund Shareholders.
Notes to the financial statements
for the six months ended 30 June 2014
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. Jonathan 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 30 June 2014, 30
June 2013 and 31 December 2013 the only Feeder Fund Share Class in existence
was the UK Emerging Companies Share Class. In addition, at 31 December 2012,
the Company had in issue a class of Cash Fund Shares which provided, via
investment in a BlackRock managed money-market fund, exposure to a portfolio of
short-term money market instruments. All the Cash Fund Shares were redeemed or
converted into UK Emerging Companies Shares with effect from 12 February 2013.
From 25 April 2013 the Cash Fund Shares were no longer admitted to trading on
the Main Market of the London Stock Exchange for listed securities and the
Official List of the UK Listing Authority.
The UK Emerging Companies Share Class invests into the BlackRock UK Emerging
Companies Hedge Fund Limited - Class I60 £ Shares (the "Hedge Fund"), a Cayman
Islands domiciled hedge fund. During the year ended 31 December 2013, for the
period in which they were in existence, the Cash Fund Shares invested 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 by maintaining a short portfolio.
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. Notes 7, 9 and 10 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"). The financial statements reflect the following significant accounting
policies:
Cash and cash equivalents
Cash includes 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 and cash equivalents are 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.
As permitted under US GAAP, investments in investment funds are valued, as
practical expedient, utilising the net asset valuations provided by the
underlying investment funds, without adjustment, when the net asset valuations
of the investments are calculated (or adjusted by the Company if necessary) in
a manner consistent with US GAAP for investment funds. The Company applies the
practical expedient to its investments in Investment Funds on an
investment-by-investment basis, and consistently with the Company's entire
position in a particular investment, unless it is probable that the Company
will sell a portion of an investment at an amount different from the net asset
valuation. If it is probable that the Company will sell an investment at an
amount different from the net asset valuation or in other situations where the
practical expedient is not available, the Company considers other factors in
addition to the net asset valuation, such as features of the investment,
including subscription and redemption rights and restrictions, expected
discounted cash flows, transactions in the secondary market, bids received from
potential buyers, and overall market conditions in its determination of
fair value.
Underlying Investment Funds
The fair value of the underlying investment funds is based on audited net asset
values (where available) provided by the relevant administrator or fund manager
of the underlying investment fund.
Foreign currency translation
The Company's reporting currency is Sterling Pounds. Assets and liabilities
originating in non-Sterling Pounds denominated currencies are translated into
Sterling Pounds at the appropriate rates of exchange in effect at the date of
the financial statements and are re-measured at each reporting date with any
gain or loss recognised in the Statement of Operations. Income and expense
transactions originated in non-Sterling Pounds denominated currencies have been
translated into Sterling Pounds 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.
New accounting pronouncements
i) Adopted during the period
In June 2013, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2013-08, "Financial Services -
Investment Companies (Topic 946): Amendments to the Scope, Measurement, and
Disclosure Requirements". The guidance clarifies the characteristics of an
investment company under US GAAP and provides guidance for assessing whether an
entity is an investment company. Consistent with existing guidance for
investment companies, all investments are to be measured at fair value
including non-controlling ownership interests in other investment companies.
There are no changes to the current requirements relating to the retention of
the specialised accounting of ASC 946 in the consolidated financial statements
of a non–investment company parent. The ASU also requires an investment company
to disclose certain aspects of the application of ASC 946 and any changes in
its status as an investment company. ASU 2013-08 is effective for interim and
annual periods beginning after December 15, 2013 and early application is
prohibited. The Company adopted ASU 2013-08 during the current period and as a
result of its assessment of the amendments to the standard, concluded that the
Company continues to qualify as an investment company. As such, the adoption of
the standard did not have an impact on the Company's financial statements.
ii) Issued but not yet effective
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with
Customers" that introduces a new five-step revenue recognition model in which
an entity should recognise revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. This ASU
also requires disclosures sufficient to enable users to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising from
contracts with customers, including qualitative and quantitative disclosures
about contracts with customers, significant judgements and changes in
judgements, and assets recognised from the costs to obtain or fulfil a
contract. This standard is effective for fiscal years beginning after 15
December 2016, including interim periods within that reporting period. The
Company is currently evaluating the new guidance to determine the impact it
will have on its financial statements.
Income taxes
The Company has adopted the authoritative guidance for uncertainty in income
taxes included in FASB ASC 740 "Income Taxes", as amended by 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 50% 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 has reviewed its tax positions and
believes these will be sustained, accordingly there are no unrecognised tax
assets or liabilities. 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 30 June 2014, 30 June 2013 and 31
December 2013 are detailed below:
Fair % Primary Redemptions
value of geographic permitted
£ Company's location
net
assets
Investment
30 June 2014
BlackRock UK Emerging 33,519,658 99.68 Cayman 60 calendar
Companies Hedge Fund Limited Islands days'
- Class I60 £ Shares notice
-------- --------
Total 33,519,658 99.68
-------- --------
30 June 2013
BlackRock UK Emerging 56,154,349 100.38 Cayman 60 calendar
Companies Hedge Fund Limited Islands days'
- Class I60 £ Shares notice
-------- --------
Total 56,154,349 100.38
-------- --------
31 December 2013
BlackRock UK Emerging 40,701,860 100.27 Cayman 60 calendar
Companies Hedge Fund Limited Islands days'
- Class I60 £ Shares notice
-------- --------
Total 40,701,860 100.27
======== ========
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
based on the net asset value of the underlying investment fund. 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 30 June 2014, 30 June 2013 and 31
December 2013:
Level Level Level Total
1 2 3 Fair
Fair Fair Fair Value
Value Value Value £
£ £ £
30 June 2014
Investments in underlying
investment funds - 33,519,658 - 33,519,658
-------- -------- -------- --------
30 June 2013
Investments in underlying
investment funds - 56,154,349 - 56,154,349
-------- -------- -------- --------
31 December 2013
Investments in underlying
investment funds - 40,701,860 - 40,701,860
======== ======== ======== ========
There were no transfers between level 1, level 2 or level 3 during the period
ended 30 June 2014 (30 June 2013: nil; 31 December 2013: nil). Additionally,
there were no level 3 investments during the period ended 30 June 2014 (30 June
2013: nil; 31 December 2013: nil).
4. DERIVATIVE INSTRUMENTS
The Company does not hold any derivative contracts at period end (30 June 2013:
nil; 31 December 2013: nil).
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 risk
The Company's UK Emerging Companies Share Class invests only in 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 fair 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
meet quarterly redemption requests in a timely manner) and the fair 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 participate in quarterly redemptions, to
enable sufficient time for underlying portfolio realisations to be made at the
Hedge Fund level. The Company also has a £3.3 million borrowing facility which
can be utilised to meet short-term liquidity requirements. No amounts have been
withdrawn from this facility as at the balance sheet date.
Market risk
Market risk arises from volatility in the prices of the Company's investments.
It represents the potential loss the Company might suffer through holding
investments in the face of negative market movements. The Company currently
only invests in one holding in the Hedge Fund and is therefore exposed to the
underlying market risk that impacts the Hedge Fund's holdings.
Management of the risk
The Board receives regular reporting from the Hedge Fund Investment Manager on
the performance of the Hedge Fund, and reviews the portfolio analysis including
sector and market capitalisation, and gross, net and beta adjusted disclosure.
The Hedge Fund Investment Manager assesses the exposure to market risk when
making each investment decision and monitors the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
6. SHARE CAPITAL, VOTING RIGHTS, SHARE CONVERSION AND REDEMPTION
Authorised:
100 Management Shares
Unlimited Shares of any class
30
June
2014
Number
of
Shares
UK
Emerging
Companies
Shares
In issue at beginning of period (excluding shares in
treasury) 28,942,959
Issued during the period 150,000
Redeemed in the period as a result of quarterly redemption
mechanism and cancelled (3,117,731)
--------
In issue at end of period (excluding shares held in
treasury) 25,975,228
========
Shares held in treasury 2,543,750
Total shares in issue 28,518,978
30 30
June June
2013 2013
Number Number
of of
Shares Shares
Cash UK
Fund Emerging
Shares Companies
Shares
In issue at beginning of period
(excluding shares in treasury) 3,877,914 44,663,600
Issued/(redeemed) during the period as a
result of conversions from UK Emerging
Companies Share Class 3,435,588 (2,675,000)
Redeemed during the period as a result of
the Cash Exit (7,281,871) -
(Redeemed)/issued in the period as a
result of conversions from the Cash Fund
Share Class (31,631) 24,322
-------- --------
In issue at end of period (excluding
shares held in treasury) - 42,012,922
-------- --------
Shares held in treasury - 300,000
-------- --------
Total shares in issue - 42,312,922
======== ========
31 31
December December
2013 2013
Number Number
of of
Shares Shares
Cash UK
Fund Emerging
Shares Companies
Shares
In issue at beginning of year (excluding
shares in treasury) 3,877,914 44,663,600
Issued/(redeemed) during the year as a
result of conversions from UK Emerging
Companies Share Class 3,435,588 (2,675,000)
Redeemed in the year as a result of
quarterly redemption mechanism and
cancelled - (9,879,610)
Redeemed during the year as a result of
quarterly redemptions and taken into
treasury - (3,190,353)
Redeemed during the year as a result of
the Cash Exit (7,281,871) -
(Redeemed)/issued in the year as a result
of conversions from the Cash Fund Share
Class (31,631) 24,322
-------- --------
In issue at end of year (excluding shares
held in treasury) - 28,942,959
-------- --------
Shares held in treasury - 2,894,295
-------- --------
Total shares in issue - 31,837,254
======== ========
Treasury Shares 30 30 31
June June December
2014 2013 2013
Shares held in treasury brought forward
at 1 January 2,894,295 300,000 300,000
Shares taken into treasury from quarterly
redemptions - - 3,190,353
Shares issued from treasury (50,000) - -
Shares cancelled from treasury in the
period/year (300,545) - (596,058)
-------- -------- --------
Shares held in treasury at end of period/
year 2,543,750 300,000 2,894,295
======== ======== ========
Cash Fund shares
During the year ended 31 December 2013, 2,675,000 UK Emerging Companies Shares
were converted into 3,435,588 Cash Fund Shares on 11 January 2013. Also, on
12 February 2013, 31,631 Cash Fund Shares were compulsorily converted into
24,322 UK Emerging Companies Shares.
All the Cash Fund Shares were then redeemed or compulsorily converted on 12
February 2013. From 25 April 2013 the Cash Fund Shares were delisted from the
main market of the London Stock Exchange.
UK Emerging Companies shares
Further to the redemption and compulsory conversion of Cash Fund Shares on
12 February 2013, the Company introduced a quarterly Redemption Facility with
effect from 11 April 2013 for up to 20% of the Company's issued UK Emerging
Companies Shares (excluding treasury shares), at NAV less redemption costs.
The Redemption Facility was made available to shareholders once during
the period ended 30 June 2014 and three times in the year ended 31 December
2013. During the period ended 30 June 2014, the Redemption Facility was made
available to shareholders on 31 March 2014 and three calculation dates in the
year ended 31 December 2013 as at 30 June, 30 September and 31 December.
On 12 February 2013, 24,322 UK Emerging Companies Shares were issued on
compulsory conversion of 31,631 Cash Fund Shares. Of the shares repurchased as
a result of quarterly redemptions completed during the year ended 31 December
2013, the Company repurchased and cancelled 9,879,610 shares for a total
consideration of £17,424,981, and repurchased and placed into treasury
3,190,353 shares for a total consideration of £4,248,210.
The Company's December 2013 Redemption was fully implemented on 16 January
2014, with redemption requests in respect of 3,005,454 UK Emerging Companies
Shares satisfied in full. Proceeds of 140.217 pence per share (being the UK
Emerging Company Share Class NAV at 31 December 2013 of 140.251 pence per share
less redemption costs) were paid to shareholders on 16 January 2014.
The Company's March 2014 Redemption was fully implemented on 18 April 2014,
with redemption requests in respect of 112,277 UK Emerging Companies Shares
satisfied in full. Proceeds of 137.188 pence per share (being the UK Emerging
Company Share Class NAV at 31 March 2014 of 138.079 pence per share less
redemption costs) were paid to shareholders on 18 April 2014. The redeemed
shares were cancelled.
As the Company's shares traded on average at a premium to NAV over the June
2014 Redemption Calculation Period (1 January 2014 to 31 March 2014) and
September 2014 Redemption Calculation Period (1 April 2014 to 30 June 2014),
the Directors did not offer a Redemption Facility in respect of the June 2014
and September 2014 quarters.
The Company’s 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.
Treasury shares
As a result of the quarterly redemptions, the Company took 3,190,353 shares
into treasury during the year ended 31 December 2013. In addition, 596,068
shares were cancelled from the treasury during the year ended 31 December 2013.
During the period ended 30 June 2014, the Company also issued 50,000 shares out
of treasury for consideration of £70,000 and cancelled 300,545 shares held in
treasury. Following this, the Company held 2,543,750 UK Emerging Companies
Shares in treasury.
Management shares
The Company's authorised share capital also 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.
Voting rights
With the Redemption and Compulsory Conversion of the Cash Fund shares on
12 February 2013, there is now only one class of shares in issue, so each UK
Emerging Company Share effectively holds 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 1
vote 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 (at present the Company only
has one class of Feeder Fund shares in issue).
The underlying Investment Manager will receive from the Hedge Fund (a) an
investment management fee equal to 1/12 of 1.75% per month of the aggregate net
asset value of the class of shares in the Hedge Fund 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% of the appreciation in the net asset value per
share during that Calculation Period above the "base" net asset value of such
share. A high watermark is in place such that the base net asset value of such
share is defined as 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.
This ensures an investor does not pay a fee on the same performance more than
once.
8. FEES AND EXPENSES
Fees payable to the Sub-Administrator, Custodian and other ongoing operational
expenses payable by the Company are estimated to be 0.8% per annum of the
Company's average Net Asset Value and comprise the following items:
Six Six Year
months months ended
ended ended 31
30 30 December
June June 2013
Expenses accrued in the period 2014 2013 £
£ £
Directors' fees 33,721 33,721 68,000
Fees payable to the Sub-Administrator
(in respect of services provided by both
the Sub-Administrator and the Custodian) 25,000 25,260 50,260
Fees payable to the Company's broker 17,356 17,356 51,409
Fees payable to the Auditor 5,074 6,429 9,765
Costs associated with implementation of - 49,450 49,450
Redemption Facility
Other operational expenses 62,679 70,125 101,810
-------- -------- --------
Total 143,830 202,341 330,694
======== ======== ========
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 (at present the Company only has one class of Feeder Fund
shares in issue).
The majority of the Company's invoices are received and processed on a regular
basis by BlackRock's Accounts Payable department. These costs are collated and
recharged quarterly for reimbursement. As at 30 June 2014, creditors, accounts
payable and accrued expenses outstanding were due substantially to BlackRock in
respect of these recharged balances.
30 30 31
June June December
2014 2013 2013
Expenses falling due for payment £ £ £
at the period end (unaudited) (unaudited) (audited)
Sub-administration fees 58,333 79,506 33,333
Directors' fees 67,721 76,528 34,000
Audit fees 14,300 6,044 9,226
Fees due to the Company's broker 46,352 45,487 30,000
Costs associated with restructuring and
implementation of the Redemption Facility - 124,450 7,120
Other accounts payable and accrued
expenses 121,297 151,799 51,497
-------- -------- --------
Total 308,003 483,814 165,176
======== ======== ========
9. RELATED PARTY TRANSACTIONS
As at 30 June 2014, Mr Frank Le Feuvre held 100,000 shares in the UK Emerging
Companies Share Class (30 June 2013: 100,000 shares; 31 December 2013: 100,000
shares). Mr Jonathan Ruck Keene held 309.3219 shares in the Hedge Fund (30 June
2013: 309.3219 shares; 31 December 2013: 309.3219 shares).
The total amount paid to Directors was £35,209 for the period ended 30 June
2014 (30 June 2013: £35,209; 31 December 2013: £71,000). This amount comprised
remuneration of £33,721 (30 June 2013: £33,721; 31 December 2013: £68,000) and
also reimbursement for travel and other out-of-pocket expenses relating to
attendance at meetings and other matters amounting to £1,488 (30 June 2013:
£1,488; 31 December 2013: £3,000).
Mr Le Feuvre and Mr Ruck Keene are Directors of the Company and are also
employees of the Manager and Investment Manager respectively. Mr Le Feuvre is a
director of a number of other BlackRock Funds including the Hedge Fund. Mr Ruck
Keene is a director of the BlackRock Commodities Income Investment Trust plc.
10. TRANSACTIONS WITH THE INVESTMENT MANAGER
Details of fees paid to the Investment Manager are disclosed in note 7.
The Company invests into the Hedge Fund which is also managed by BlackRock.
During the period/year ended 30 June 2013 and 31 December 2013, it also
invested in the Liquidity Fund which is managed by BlackRock.
11. SUBSEQUENT EVENTS
AIFMD
The Alternative Investment Fund Managers Directive (the "Directive") is a
European Directive which seeks to reduce potential systematic risk by
regulating alternative investment fund managers ("AIFMs"). The Directive was
implemented in the laws of several European Economic Area ("EEA") states on 22
July 2013, although most EEA states implemented transitional provisions such
that compliance with the requirements of the Directive by the Manager was not
required until July 2014.
The Directive imposes detailed and prescriptive obligations on fund managers
established in the EEA (the "Operative Provisions"). These do not currently
apply to managers established outside of the EEA, such as BlackRock (Channel
Islands) Limited ("the Manager"). Rather, non-EEA managers are only required to
comply with certain disclosure, reporting and transparency obligations of the
Directive (the "Disclosure Provisions") and, even then, only if shares or units
of a fund are marketed to EEA investors. Where the Disclosure Provisions appear
to require disclosure on an Operative Provision which does not apply to the
Manager, no meaningful disclosure can be made. Operative Provisions include
prescriptive rules on: measuring and capping leverage in line with known
European standards; the treatment of investors; liquidity management; the use
of "depositaries"; and cover for professional liability risks.
The Jersey Financial Services Commission has granted its permission for the
Company to be marketed in any EEA jurisdiction to which the Directive applies
provided that the Manager (in its capacity as the AIFM of the Company) and the
Company comply with the applicable sections of the AIF Codes. The AIF Codes
transpose the parts of the AIFMD and implementing legislation as far as such
parts can be said to apply to any person in Jersey and apply to the Manager and
the Company, through the application of Principle 8 of the FSB Codes and
Principle 9 of the Certified Funds Codes.
On 21 July 2014, the Company applied for registration on the UK Financial
Conduct Authority's (FCA's) Article 42 register, and has taken steps to ensure
that it will be able to market shares in the UK in accordance with the
transparency requirements of the Directive, should it wish to do so.
September Redemption Facility
On 1 July 2014 the Company announced in respect of the September 2014
Redemption Facility that for the relevant discount calculation period (1 April
2014 to 30 June 2014), the Company's UK Emerging Companies Shares had traded at
an average premium of 0.9%, and that the Directors would exercise their
discretion not to implement the September 2014 Redemption Facility.
Other
Management has evaluated the impact of all material subsequent events on the
Company to 28 August 2014, the date the financial statements were issued, and
has determined that there were no other material subsequent events requiring
adjustment or disclosure in the financial statements.
12. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly report does not
constitute statutory accounts as defined in the Companies (Jersey) Law 1991.
The financial information for the six months ended 30 June 2014 and 30 June
2013 have not been audited. The information for the year ended 31 December 2013
has been extracted from the latest published audited financial statements,
which have been filed with the Jersey Financial Services Commission. The report
of the Auditor for the year ended 31 December 2013 contains no qualification
and did not contain statements under section 113B(3) or (6) of the Companies
(Jersey) Law 1991 (as amended).
13. APPROVAL OF THE FINANCIAL STATEMENTS
The half yearly financial report was approved by the Directors on 28 August
2014.
Copies of the half yearly financial report will be posted to shareholders as
soon as practicable. Copies will also be available to the public from the
Company's registered office at One Waverley Place (4th Floor), Union Street, St
Helier, Jersey JE1 0BR, and on BlackRock Investment Management's website at
blackrock.co.uk/brhs.BLACKRK HDGE UK RED PART SHS NPV UK EMERGING SHS : BLACKROCK HEDGE SELECTOR LTD - Half-yearly Report
August 28, 2014 at 09:07 am EDT
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