Boussard & Gavaudan : BGHL August 2016 Monthly statement

A closed-ended investment company incorporated with limited liability under the laws of Guernsey with registration number 45582

1. BG FUND

   Note that trade examples detailed in each strategy below are among the best and worst performances of the month.

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   COMMENTARY AND HIGHLIGHTS

   The Eurostoxx 50 finished August up 1.08%. VStoxx finished at 19.4%, down from 20.2%. The iTraxx Crossover ended August at 311bps, 6bps tighter on the month.

   Volatility Strategies

   Mandatory convertible bond arbitrage

   Mandatory convertible bonds contributed positively this month. There was no primary issuance in Europe and volumes were very limited.

   Convertible bond arbitrage

   1 The total value of the investments of BGHL is based on the final NAV for the euro and sterling shares and the currency exchange rate for the Sterling vs. Euro.

   Convertible bonds contribution (excl. mandatories) to the performance of the fund was positive in August. Flows were muted as usual for the summer season. There was no primary issuance until 30 August. Two regular issuers came into the market on the last trading days.

   Valuations were stable. The positive contribution came from repricing following the earnings season and from buyers of GBP names. We closed out our positions in Balfour Beatty, as we considered that all positive expectations were fully priced, and similarly in Deutsche Wohnen.

   Volatility Trading

   Volatility trading contributed negatively. This month negative performance was due to the very low realised volatilities (30-day realised on SPX at 50-year lows) and lower implied volatilities across asset classes on the back of dovish central bank messaging. This dovishness also kept bonds at elevated levels so they also did not deliver the expected negative correlation to volatility.

   Entering into September, the positioning is little changed with very defensive positioning and long volatility positions across asset classes given the multiple macroeconomic uncertainties and the attractive risk-reward of a long volatility position at these levels.

   Equity strategies

   August was a month with very low volatility in the equity markets and while we spent about 50bps of theta during the month, our portfolio returned positively.

   Part of the performance came from a continued positive momentum from some of our investments, following positive Q2 earnings releases. The bulk of the performance came from financials.

   Our financials portfolio benefited from good stock picking through the results season and some sector rotation on the back of resilient post-Brexit macroeconomic data and expectations of hikes in US rates. We benefited particularly from Aviva, which rebounded strongly from a depressed valuation on the back of solid earnings and a clear win on capital generation.

   Following the recent performance of our equity portfolio, we took some profit and reduced overall exposure, leaving us ready to deploy more capital into new opportunities.

   Credit strategies

   Capital Structure Arbitrage

   Capital structure arbitrage contribution to the fund was flat this month.

   August was very quiet in terms of activity and realised volatilities were subdued. Most of the indicators we monitored were unchanged during the month. This environment was not particularly favourable for this sub- strategy as we were not able to trade around the existing positions and no new discrepancies occurred. Our portfolio remains well balanced between cross-asset exposures.

   We expect in the coming months that monetary policy divergences between US and Europe could create some market noise and therefore opportunities. Consequently, our global exposure at the moment is still limited while we wait for more disruptions in the market to deploy new trades.

   Credit long / short

   Our credit long / short strategies contributed positively in August. Activity was limited but the market remained constructive on the same themes we observed in July; in particular, more accommodative central banks and

   strong technicals (inflows). In particular, the Bank of England followed the path of the ECB announcing they will proceed with an investment grade corporate bond buying programme.

   In financials, primary market remained active especially on the Additional Tier 1 segment that saw a favourable reopening of the market for the UK banks less than two months after the Brexit vote. Issuance from RBS, Standard Chartered and Barclays attracted strong demand.

   The main contributor this month was our long position in Solocal's bonds and loans. The group announced a financial restructuring plan, aiming to reduce its gross debt by two thirds via a proposed right issue and a debt to equity swap. Negotiations and consultation with stakeholders are on-going with the objective to finalise the consultation process ahead of a shareholders' meeting scheduled for 19 October.

   Elsewhere, high yield CGG bonds continued to perform following the encouraging results published at the end of July.

   Trading

   Trading contributed negatively in August.

2. DIRECT INVESTMENTS OTHER THAN BG FUND

   On top of its investment in BG Fund, BGHL has other investments. As of 31 August 2016, the net asset value of these investments represents approximately 6% of the net asset value of BGHL.

   Rasaland Investors ("RLI")

   RLI is a Malta-based holding company structured as a private equity fund in terms of fees and organisation and managed by BK Partners. RLI is dedicated to investing in land, hotels and high-end resort developments in Mexico. RLI has invested and is developing the Mandarina, Xala & Seramai resorts in Mexico. RLI's initial business was, soon after launch, affected by several adverse events which have changed the exit solution and the time schedule considered initially. RLI has mitigated the risk of running out of cash by selling in 2012 a stake in one of its land projects to a large Mexican institutional pension fund, raising USD 80 million with the National Infrastructure Fund and by listing (IPO) in November 2015 RLI's hotel subsidiary on Mexico's exchange, raising a total of USD 27 million. The subsidiary is the owner of the Four Seasons hotel in Mexico City acquired in May 2013.

   In February 2015 BK Partners entered into an agreement with Kerzner International Holdings Limited to develop and operate two new One&Only resorts in Mandarina and Xala, on the Pacific Coast of Mexico. RLI is currently focused on the development of the One&Only hotel of the Mandarina project. This development is likely to accelerate the liquidity to RLI's investment in Mandarina through the sale of land parcels as well as private residential estates.

   GFI Informatique

   BGHL holds GFI shares. GFI is a major player in value-added IT services and software in Europe. GFI is listed on the Paris Euronext, NYSE Euronext (Compartment B) - ISIN Code: FR0004038099.

   On 23 November 2015 Mannai Corporation ("Mannai"), together with Apax France (jointly with Altamir) and Boussard & Gavaudan, announced having entered exclusive negotiations for Mannai to purchase a 51 percent equity stake in GFI at a price of €8.50 per share. The press release is available at: http://www.bgholdingltd.com/uploadImages/File/ACTUS-0-42198-151123_PR_Gfi_EN.pdf.

   On 8 April 2016 Mannai acquired from entities managed by Apax, including Infofin Participations Sàrl ("Infofin"), and Boussard & Gavaudan (the "Sellers") 25% of the GFI share capital and voting rights (on a fully diluted basis) at €8.50 per share. Mannai and the Sellers entered a shareholders' agreement providing that they will act in concert. Following this transaction, BGHL received repayment of the Infofin bonds. On 19 April 2016 Mannai filed a cash tender offer on GFI which closed on 15 June 2016. On 20 June 2016 the Sellers completed a second block sale to Mannai at €8.50 per share so that Mannai holds 51% of the share capital and voting rights of GFI on a fully diluted basis.

3. BOUSSARD & GAVAUDAN INVESTMENT MANAGEMENT UPDATE

   TRANSA CTION IN T H E COMP ANY'S SECURITIES

   Please note that transactions in the Company's securities that have been performed by officers, directors and persons referred to in the section 5:60 of the Financial Supervision Act ("Wft") are reported:

   • directly on the AFM website: www.afm.nl (professionals > registers > notifications > insider- transactions 5:60 wft);

   • on the Company's website through a link to the AFM notification: www.bgholdingltd.com (Investment Manager > Regulatory information).

     Transactions in the Company's own securities are also reported on:

   • the AFM website: www.afm.nl (professionals > registers > notifications > price-sensitive press releases);

   • the Company's website: www.bgholdingltd.com (Investor Relations > Financial announcements).

As of 1 September 2016, BG Group assets under management are at €2.9bn.

E. Boussard & E. Gavaudan

Contact information

Boussard & Gavaudan Investment Management, LLP 1 Vine Street, London W1J 0AH - United Kingdom