BGHL September 2008 newsletter
September 2008 Review
Dear Shareholders,
September has been particularly challenging for the Sark Fund. Given
the very poor performance reported this month, we would like to
provide you with some clarifications about the Sark Fund.
September performance
Market conditions have been exceptionally tough this month. Tensions
were extreme and reached a peak with the Lehman bankruptcy, followed
by other financial institutions in difficulties rescued just in time
by either competitors (Merrill Lynch), governments (Dexia, Fortis),
central banks (AIG) or core shareholders (Goldman Sachs, Morgan
Stanley). In this context, the convertible bond market has been hit
as main players are proprietary trading desks of banks and hedge
funds. Positions being liquidated by these "forced sellers" have
weighed on bonds valuations which we had hence significantly marked
down. Almost all the convertible bonds of the Sark Fund are now at
their bottom price as they are marked at parity. We could now unwind
75% of these bonds by accelerating the conversion and it would not
cost the fund more than a few points. These valuation levels have not
been seen for decades! We do believe that these strategies offer very
attractive investment opportunities for the fund. However we remain
cautious given the environment and maintain a very low level of
leverage.
Prime brokers exposure and counterparty risk
It is Sark Fund's policy to have several prime brokers in order to
diversify its exposure and obtain the best services. The fund
currently has six prime brokers (Lehman was not one of them). Given
the collapse of Lehman and tensions arising on broker-dealers, we
decided during this month to rebalance Sark Fund assets in favour of
what we think are the fund's most "robust" prime brokers. Most of the
rebalancing has already been done and we are continuing this
exercise. We are also actively monitoring other types of counterparty
risks. We are cutting exposure to some counterparties which we are
trading with under ISDA. We are also switching exposure from over the
counter (OTC) to the clearing houses of regulated exchanged. This is
done selectively where we feel we are the most exposed.
Lehman exposure
Lehman Brothers was not a prime broker of the Sark Master Fund.
Nevertheless, the fund has exposure to Lehman. Almost half of the
exposure is due to collateral posted to cover independent amounts on
OTC derivatives traded under ISDA with Lehman Brothers International
Europe. The remaining exposure is due to a corporate loan that Sark
Fund has in sub participation through Lehman Commercial Papers Inc.
Given the circumstances, the valuation and investment committees have
given a low probability to the recovery of this exposure. Globally,
this is contributing for
-88bps* to the performance of the fund in September.
Short selling restrictions
We do not believe that short selling restrictions recently announced
in Europe will significantly restrict convertible bond arbitrage,
mandatory arbitrage and gamma trading as, in most jurisdictions where
we are involved, it is the net exposure that is taken into account.
Investment strategy
Given current market conditions, we have decided to reduce the risk
of the Sark Fund. At the end of August, the equity at risk was at
53%. Today, it stands at 49.3% and we intend to reduce it further.
This is very close to the lowest level of equity at risk the Sark
Fund has ever had.
Discount versus NAV
The Company intends to return shortly to its shareholders with a
proposal to address the discount of its shares vs. NAV.
I. Company Information
General information
Investment Manager Boussard & Gavaudan Asset Management, L.P.
Company Domicile Guernsey
Website www.bgholdingltd.com
Management fee 1.5% p.a.
Performance fee 20%
SEDOL ISIN Reuters Bloomberg
EUR LSE B28ZZQ1 GG00B1FQG453 BGHLx.L BGHL LN
EUR Euronext B1FQG45 GG00B1FQG453 BGHL.AS BGHL NA
GBX LSE B39VMM0 GG00B39VMM07 BGHS.L BGHS LN
GBX Euronext B39VMM1 GG00B39VMM07 BGHS.AS BGHS NA
II. Overview
Boussard & Gavaudan Holding Limited ("BGHL") is a Guernsey
closed-ended investment company and is registered with the Dutch
Authority for the Financial Markets as a collective investment scheme
under article 1:107 of the Dutch Financial Markets Supervision Act.
BGHL invests its assets in order to deliver an exposure to multiple
alternative investment strategies managed by the Investment Manager.
The investment objective is to seek to produce long-term appreciation
of its assets. BGHL will seek to achieve this by investing into Sark
Fund Limited ("Sark Fund"). In addition, a proportion of the net
assets of the BGHL may, at the discretion of the Investment Manager,
be invested in other hedge funds and/or other financial assets
selected by the Investment Manager. As at today's note, two
investments have been made. BGHL aims to generate a target annualised
return in excess of 10% (net of all fees).
III. Share information
NAV Euro Shares Sterling Shares
Estimated NAV ¤9.2893 £8.8780
Estimated Month to date return -10.85% -9.84%
Estimated Year to date return -16.31% -11.22%
Estimated Inception to date return -7.11% -11.22%
Euro Shares Amsterdam (AEX) London (LSE)
Market close ¤6.61 ¤7.30
Premium / discount to estimated NAV -28.84% -21.41 %
Sterling Shares Amsterdam (AEX) London (LSE)
Market close n/a GBX 657.50
Premium / discount to estimated NAV n/a -25.94%
In the context of the current discount to NAV, the Company continues
to purchase some of its own shares into treasury.
Euro Shares Sterling Shares
Shares issued 83,958,598 5,117,202
Shares held in treasury 7,518,966 282,283
Shares outstanding 76,439,632 4,834,919
Total value of the investments of BGHL based on the ¤765 million
estimated NAV for the shares outstanding
Market capitalisation of BGHL based on the share
price for the shares outstanding ¤546 million
Amsterdam (AEX) market close for the Euro Shares &
London (LSE) market close for the Sterling shares
IV. BGHL Composition
The proceeds of the initial public offering of BGHL have been
invested into the Sark Fund as of October 31, 2006 (net of a certain
amount retained by BGHL for working capital requirements). The
proceeds of the secondary offering of BGHL (approximately ¤534
million) have been entirely invested into the Sark Fund: ¤530 million
as of July 1, 2007 and approximately ¤4 million as of August 1, 2007
(as a result of the over-allotment).
In addition to having 100% of its proceeds invested into the Sark
Fund, BGHL is invested in private equity companies.
A. Sark Fund Limited
Note that trade examples detailed in each strategy below are among
the best and worst performances of the month.
European equities markets moved down sharply in September with the
Eurostoxx 50 down 9.73%. Volatilities on stock markets reached a peak
during this month: the VIX index moved up to 39.39% from 20.65% and
the VStoxx index up to 40.39% from 21.06%. The iTraxx crossover index
ended the month at 592bps (+44bps).
Credit strategies
Credit strategies cost 86bps* to the fund in September.
Even if, at times, credit spreads found temporary relief through
the announcements and political discussions around the TARP plan,
this did not prevent large-scale liquidations that were only
accelerated after the Lehman bankruptcy in September. The fact that
the US government has approved the use of public funds to purchase
(rather than simply fund) distressed assets is obviously a very
positive move towards addressing and possibly resolving this crisis.
It also sanctions the fact that this is not only a funding crisis,
but mostly an asset quality/valuation and solvency crisis.
In these extraordinary times where valuations are being driven by
much more than credit fundamentals, we accelerated the reduction of
our positions that did not have short term appreciation catalysts. We
cut our long credit positions in bonds and loans by 34%. We will
continue to opportunistically reduce our positions. Indeed, in this
constricted market environment, refunding needs will continue to
outweigh asset quality and other fundamental measures. Though the
single market theme has been the stresses in the financial sector,
once more "normal" conditions are re-established and the real economy
again becomes the main focal point, lower quality non-financial
investment grade companies with funding needs will remain under
scrutiny.
We also got hit by one of our shorts this month. We were net short
CIBA credit risk as we thought the trend of weak results (EBIT -20%
y-o-y), and structural pressures (cost cutting efforts were swamped
by the combined pressures from FX, price erosion, raw materials, and
slowing demand) would carry on deteriorating fundamental credit
metrics. We were amazed by the price BASF offered for the company,
which triggered a 220bps tightening of the 5y CDS.
Equity Strategies
Equity strategies contributed a negative 154bps* in September. We
were particularly impacted by the announcement of IFI/IFIL merger.
Even tough the exchange ratio was positive for IFIL shareholders, we
did suffer from a widening of the holding discount following market
dislocation and funds deleveraging aggressively. On the positive
side, the portfolio benefited from hedges put in place through gamma
trades. Given current market conditions, we have decided to cut most
of the remaining equity trades as we believe the current environment
is too uncertain for those strategies and does not provide good
enough relative risk rewards.
Volatility strategies
In September, the bulk of the loss of the Sark Fund came from our
convertible bonds and mandatories portfolio as the European
equity-linked market completely collapsed this month on the back of
extreme selling pressure driven by several forces. Whilst the
deleveraging trend and the rise of funding costs had already hit the
strategy globally in the past months, the Lehman bankruptcy triggered
a wave of hard selling of convertibles and mandatories positions held
as collateral by various Lehman counterparties. This put further
pressure on the (already bad) performance of convertible funds on a
global basis and prompted waves of selling across the board, amidst
rising expectations that hedge funds as well as convertible long only
funds may face sizeable redemptions by the end of the third
quarter. The collapse was even further amplified by the extreme lack
of liquidity of the market and the complete lack of transparency on
the price of some bonds as we experienced ourselves. Some bonds (even
the largest ones) were 'quoted' by dealers with 5 points bid/offer
spreads, with absolutely no trading in the bonds to support such
'quotes', as we have experienced ourselves (see below regarding the
UBS / BBVA mandatory exchangeable bond).
Convertible bond arbitrage
The convertible bonds book contributed -230bps* to the fund's
performance this month. We experienced significant losses in our low
delta / credit sensitive convertibles on the back of widening credit
spreads, liquidation of positions held as collateral against Lehman
claims, and a total lack of buying interest in such convertible
profiles. We also marked down our investment in the Jazztel
convertibles. Our investment in the Fortis Convertible And
Subordinated Hybrid Equity-linked Securities ('CASHES') cost us
144bps* as the bonds tumbled amidst investor fears of liquidity
issues at the Belgian bank. Investors were clearly concerned about
the regulatory capital position of Fortis caused by its purchase of
part of ABN Amro and large write-downs in its structured-credit
portfolio. The bankruptcy of Lehman, the fire-sale of Merrill Lynch,
the liquidation of Washington Mutual and the bail-out of AIG
triggered investor defiance towards financial institutions perceived
as the weakest in Europe, and particularly hit Fortis, which led the
Belgian, Dutch and Luxembourg governments to intervene through a
combined ¤11.2bn capital infusion at Fortis Bank, the bank arm of
Fortis (as opposed to the listed equity of the holding company). This
prevented the Fortis CASHES to further collapse but did actually not
help the bonds to recover, despite the fact that the ¤4.7bn capital
injection by the government of Belgium was realized at the issuer of
the bonds (Fortis Bank), as the bonds continue to suffer from a clear
overhang of the global tier one market. The bonds are currently
trading around 40% of par (with the shares down 70% since issue),
which given the Euribor + 2.0% coupon implies a yield of around
17.5%. Given the capital injection which has brought Fortis' tier one
ratio to 9.5% (Basel I), and the clear government support directed at
the very issuer of the CASHES, we are convinced that this bond should
trade above 70%. Nevertheless we had reduced our position by one
third as we had decided to cut our risk in the name. Our volatility
positions (high delta convertibles with no or limited credit risk)
also underperformed, driven by the same market forces (deleveraging,
rising funding costs and liquidation of Lehman collateral).
During the month we have reduced the size of the convertible bonds
book by around 20%. We now have a very concentrated portfolio, with
most of our high delta positions trading very close to their
conversion values (3 to 5 points above parity, whilst in normalized
market conditions 5-year convertible bonds used to be issued at 20 to
25 points above parity), which we believe drastically reduces the
risk of our positions.
Mandatory convertible bond arbitrage
Our mandatory convertible bond book took the highest hit, with a
negative 660bps* contribution to the performance of the fund this
month, which came essentially from our trade in the UBS / BBVA
mandatory exchangeable bonds. The bond was 'quoted' around 66-67 at
the beginning of the month although we believe there was no trading
in the name to support this mark. We started to make markets in size
in the mandatory in order to find its true value. We went out in the
market with tight bid/offer prices and we only manage to achieve a
trade some 10 points lower when we came with a firm 55-56 market.
This level corresponds to the Voluntary Conversion value of the
bonds, a level where there is no more downside mark-to-market risk
since at this level the bonds can be converted at no cost. We have
marked our investment at this level. Our position in the Fortis
Mandatory also suffered due to the same reasons as for the Fortis
CASHES.
On the positive side, we enjoyed hefty gamma gains in our mandatory
position in Lukoil, which has no credit risk as the underlying shares
are pledged for the bondholders and coupons are secured by US
Treasury notes.
Overall although we are extremely disappointed by the performance of
the UBS / BBVA mandatory exchangeable bond, we are more than ever
convinced by the value in our mandatory portfolio. Our short term
bonds (one maturing in December 2008 and two maturing in June and
September 2009 respectively) perform well and will produce very good
returns as they come to maturity, whilst the longer term ones now
trade at, or just a few points above, their conversion values which
provides a clear floor for future mark-to-market movements.
Corporate warrant arbitrage
Corporate warrant arbitrage contributed 7bps* to the Sark Fund's
performance this month as one of our warrants on a Russian company
involved in steel pipe products performed very well on the back of
very high realized volatility.
Gamma Trading
The month of September has witnessed a series of unprecedented events
in the Finance industry, with the bankruptcy of Lehman Brothers
spurring a flight to safety and away from risky assets. This
materialized nowhere better than in the banks sector where investors
totally lost confidence in the riskier names, igniting a wave of
government bailouts and a rush to find private solutions for the
weakest. In the wake of these events, the sector witnessed
unprecedented volatility, helped by the sudden concerted actions on
short selling. Our gamma strategies benefited greatly from this
volatility (+153bps*) in the markets in general, and in Financials in
particular, yielding a 2.2% performance for the month
Trading
Trading posted a negative 62bps* to the fund's performance. One of
the losses came from a trade where we were long commodities and
energy vs. short financial stocks. This trade has been cut early in
the month. Other losses were spread across the board.
As of October 1, 2008, Sark Master Fund Limited's assets under
management were approximately ¤1.5bn.
Annex 1: Sark Fund Greeks
Greeks
Delta -2.90% -2.90 bps P&L variation for
market +1%
Gamma 2.02% Delta variation for market +1%
Vega 25.2 bps By vol point
Vega with maturity weight 23.8 bps By vol point
(1/sqrt(T))
Theta -4.5 bps By day
Rho -0.2 bps For 1 bp of interest rates
increasing
Credit sensitivity -1.5 bps For 1 bp of credit spreads
widening
Annex 2: Sark Fund Performance Attribution
Contribution to the performance*
Credit strategies -86 bps
Credit -85 bps
Capital Structure Arbitrage -2 bps
Equity strategies -154 bps
Risk Arbitrage / Special Situations 9 bps
Value with Catalyst / Value -163 bps
Volatility strategies -730 bps
Mandatory Convertible Bond Arbitrage -660 bps
Convertible Bond Arbitrage -230 bps
Gamma Trading 153 bps
Warrant Arbitrage 7 bps
Trading -62 bps
Lehman exposure loss -88 bps
Total -1120 bps
Annex 3: Sark Fund Equity at Risk
Equity at Risk
Credit Strategies 7.6%
Credit 6.7%
Capital Structure Arbitrage 0.5%
Restructurings 0.4%
Equity Strategies 11.5%
Risk Arbitrage 0.0%
Special Situations 1.7%
Value with Catalyst 9.1%
Value 0.7%
Volatility Strategies 29.8%
Mandatory Arbitrage 26.1%
Convertible Bond Arbitrage 2.4%
Gamma Trading 1.2%
Warrants Arbitrage 0.0%
Trading 0.5%
Trading 0.5%
Total 49.3%
Annex 4: Sark Fund Gross Exposure
+---------------------------------------------------------+
| | | In M¤ |
|----------------------------------------+-------+--------|
| Credit strategies | | |
|----------------------------------------+-------+--------|
| | Long | 290 |
|----------------------------------------+-------+--------|
| | Short | 44 |
|----------------------------------------+-------+--------|
| Equity strategies & Trading | | |
|----------------------------------------+-------+--------|
| | Long | 461 |
|----------------------------------------+-------+--------|
| | Short | 422 |
|----------------------------------------+-------+--------|
| Convertible bond & Mandatory arbitrage | | |
|----------------------------------------+-------+--------|
| | Long | 2,086 |
|----------------------------------------+-------+--------|
| | Short | 1,720 |
|----------------------------------------+-------+--------|
| Gamma trading | | |
|----------------------------------------+-------+--------|
| | Long | 263 |
|----------------------------------------+-------+--------|
| | Short | 263 |
|----------------------------------------+-------+--------|
| Warrant arbitrage | | |
|----------------------------------------+-------+--------|
| | Long | 6 |
|----------------------------------------+-------+--------|
| | Short | 5 |
|----------------------------------------+-------+--------|
| Gross Exposure | | 5,561 |
+---------------------------------------------------------+
+-------------------------------------------------------------------+
| | Long | Short |
|--------------------------+--------------------+-------------------|
| Credit strategies | market value long | Abs(market value |
| | | short) |
|--------------------------+--------------------+-------------------|
| | Abs (notional | notional long for |
| | short for CDS) | CDS |
|--------------------------+--------------------+-------------------|
| Equity strategies & | delta long | Abs( delta short) |
| trading | | |
|--------------------------+--------------------+-------------------|
| Convertible bonds & | market value long | Abs([delta equity |
| Mandatory arbitrage | | + options]) |
|--------------------------+--------------------+-------------------|
| Gamma trading | Abs (delta equity) | Abs(delta equity) |
|--------------------------+--------------------+-------------------|
| Warrant arbitrage | delta long | Abs(delta short) |
+-------------------------------------------------------------------+
Annex 5: Sark Fund Historical Returns Summary
Sark Fund Euro share class
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD ITD
2003 - - 0.75% 0.76% 0.82% 1.04% 0.93% 1.06% 1.18% 1.55% 1.05% 0.17% 9.69% 9.69%
2004 1.07% -0.12% 1.03% 0.22% 0.14% -0.29% -0.42% -0.42% -0.19% -0.49% 1.18% 1.07% 2.81% 12.77%
2005 1.70% 1.06% 1.09% -0.69% 0.27% 1.27% 1.16% 0.50% 1.00% -0.44% 0.71% 0.77% 8.70% 22.58%
2006 -0.18% 1.56% 1.64% 0.86% -0.47% 1.35% 0.40% 1.56% 2.73% 2.90% 2.34% 2.91% 18.99% 45.85%
2007 3.14% 1.46% 4.67% 0.74% 1.39% -2.24% 0.87% -2.20% -0.31% 1.83% -2.15% -1.24% 5.85% 54.38%
2008 -2.08% -0.01% -2.35% 1.10% 1.13% -2.33% -1.39% 0.21% -11.20* - - - -16.22%* 29.33%*
Sark Fund US Dollar share class
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD ITD
2003 - - 0.67% 0.70% 0.77% 0.94% 0.84% 0.97% 1.15% 1.46% 1.01% 0.15% 9.00% 9.00%
2004 1.00% -0.17% 0.96% 0.13% 0.07% -0.35% -0.47% -0.47% -0.24% -0.59% 1.16% 1.06% 2.08% 11.27%
2005 1.66% 1.08% 1.09% -0.64% 0.31% 1.30% 1.22% 0.62% 1.06% -0.32% 0.81% 0.89% 9.45% 21.79%
2006 -0.01% 1.64% 1.78% 1.08% -0.29% 1.49% 0.56% 1.74% 2.83% 3.06% 2.64% 3.01% 21.29% 47.72%
2007 3.19% 1.58% 4.82% 0.89% 1.45% -2.15% 0.97% -2.12% -0.22% 1.92% -2.13% -1.17% 6.97% 58.02%
2008 -2.12% -0.07% -2.57% 1.02% 0.98% -2.52% -1.50% 0.21% -11.40% - - - -17.11%* 30.98%*
Annex 6: Sark Fund Macroeconomic Risks through Stress Tests
General stress tests
Scenario Description Impact
% of NAV
Spot : 10% ; Credit : 0%
1 Delta - spot up ; Vol : 0% ; Rates : 0% 0.68%
Spot : -10% ; Credit : 0%
2 Delta - spot down ; Vol : 0% ; Rates : 0% 1.27%
Spot : 0% ; Credit : 0% ;
3 Vega - vol up Vol : 10% ; Rates : 0% 0.90%
Spot : 0% ; Credit : 0% ;
4 Vega - vol down Vol : -10% ; Rates : 0% -0.88%
Spot : 0% ; Credit : 25%
5 Credit spread widen ; Vol : 0% ; Rates : 0% -1.82%
Spot : 0% ; Credit : -25%
6 Credit spread tighten ; Vol : 0% ; Rates : 0% 2.19%
Spot : -10% ; Credit :
50% ; Vol : 30% ; Rates :
7 Market crash 1 0% 0.15%
Spot : -20% ; Credit :
75% ; Vol : 50% ; Rates :
8 Market crash 2 0% 2.32%
Spot : -30% ; Credit :
100% ; Vol : 70% ; Rates
9 Market crash 3 : 0% 5.08%
Spot : -10% ; Credit :
Market crash, rates 50% ; Vol : 30% ; Rates :
10 down 1 -12.5% 0.34%
Spot : -20% ; Credit :
Market crash, rates 75% ; Vol : 50% ; Rates :
11 down 2 -12.5% 2.53%
Market crash, rates Spot : -30% ; Credit : 100% ;
12 down 3 Vol : 70% ; Rates : -12.5% 5.29%
Spot : -10% ; Credit :
Market crash, rates up 50% ; Vol : 30% ; Rates :
13 1 12.5% -0.03%
Spot : -20% ; Credit :
Market crash, rates up 75% ; Vol : 50% ; Rates :
14 2 12.5% 2.13%
Spot : -30% ; Credit :
Market crash, rates up 100% ; Vol : 70% ; Rates
15 3 : 12.5% 4.89%
Equity Credit Spot : 5% ; Credit : 25%
16 decorrelation 1 ; Vol : 0% ; Rates : 0% -1.68%
Equity Credit Spot : 5% ; Credit : 25%
17 decorrelation 2 ; Vol : 10% ; Rates : 0% -0.76%
Equity Credit Spot : 5% ; Credit : 25%
18 decorrelation 3 ; Vol : -10% ; Rates : 0% -2.58%
Spot : -5% ; Credit :
Equity Credit -25% ; Vol : 10% ; Rates
19 decorrelation 4 : 0% 3.43%
Spot : -5% ; Credit :
Equity Credit -25% ; Vol : -10% ; Rates
20 decorrelation 5 : 0% 1.75%
Equity Credit Spot : 0% ; Credit : 25%
21 decorrelation 6 ; Vol : 10% ; Rates : 0% -0.92%
Equity Credit Spot : 0% ; Credit : 25%
22 decorrelation 7 ; Vol : -10% ; Rates : 0% -2.70%
Spot : 5% ; Credit : -25%
23 Market rally 1 ; Vol : -10% ; Rates : 0% 1.41%
Spot : 5% ; Credit : -25%
24 Market rally 2 ; Vol : 0% ; Rates : 0% 2.31%
Spot : 5% ; Credit : -25%
25 Market rally 3 ; Vol : 10% ; Rates : 0% 3.23%
Spot : 10% ; Credit :
-25% ; Vol : -10% ; Rates
26 Market rally 4 : 0% 1.96%
Spot : 10% ; Credit :
-25% ; Vol : 0% ; Rates :
27 Market rally 5 0% 2.85%
Spot : 10% ; Credit :
-25% ; Vol : 10% ; Rates
28 Market rally 6 : 0% 3.77%
Spot : 5% ; Credit : -25%
Market rally, ; Vol : -10% ; Rates :
29 Inflation 1 12.5% 1.20%
Spot : 5% ; Credit : -25%
Market rally, ; Vol : 0% ; Rates :
30 Inflation 2 12.5% 2.10%
Spot : 5% ; Credit : -25%
Market rally, ; Vol : 10% ; Rates :
31 Inflation 3 12.5% 3.02%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : -10% ; Rates
32 Inflation 4 : 12.5% 1.77%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : 0% ; Rates :
33 Inflation 5 12.5% 2.66%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : 10% ; Rates
34 Inflation 6 : 12.5% 3.58%
Spot : 5% ; Credit : -25%
Market rally, ; Vol : -10% ; Rates :
35 Inflation 7 25% 1.00%
Market rally, Spot : 5% ; Credit : -25%
36 Inflation 8 ; Vol : 0% ; Rates : 25% 1.90%
Market rally, Spot : 5% ; Credit : -25%
37 Inflation 9 ; Vol : 10% ; Rates : 25% 2.82%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : -10% ; Rates
38 Inflation 10 : 25% 1.60%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : 0% ; Rates :
39 Inflation 11 25% 2.49%
Spot : 10% ; Credit :
Market rally, -25% ; Vol : 10% ; Rates
40 Inflation 12 : 25% 3.40%
Worst -2.70%
Stress tests with small and mid caps adjustments
Scenario Description Impact
% of NAV
Spot : 10% ; Credit : 0% ;
1 Delta - spot up Vol : 0% ; Rates : 0% 1.32%
Spot : -10% ; Credit : 0% ;
2 Delta - spot down Vol : 0% ; Rates : 0% 0.65%
Spot : 0% ; Credit : 0% ;
3 Vega - vol up Vol : 10% ; Rates : 0% 0.90%
Spot : 0% ; Credit : 0% ;
4 Vega - vol down Vol : -10% ; Rates : 0% -0.88%
Spot : 0% ; Credit : 25% ;
5 Credit spread widen Vol : 0% ; Rates : 0% -1.82%
Spot : 0% ; Credit : -25% ;
6 Credit spread tighten Vol : 0% ; Rates : 0% 2.19%
Spot : -10% ; Credit : 50%
7 Market crash 1 ; Vol : 30% ; Rates : 0% -0.49%
Spot : -20% ; Credit : 75%
8 Market crash 2 ; Vol : 50% ; Rates : 0% 1.05%
Spot : -30% ; Credit : 100%
9 Market crash 3 ; Vol : 70% ; Rates : 0% 3.18%
Spot : -10% ; Credit : 50%
Market crash, rates down ; Vol : 30% ; Rates :
10 1 -12.5% -0.29%
Spot : -20% ; Credit : 75%
Market crash, rates down ; Vol : 50% ; Rates :
11 2 -12.5% 1.26%
Market crash, rates down Spot : -30% ; Credit : 100% ;
12 3 Vol : 70% ; Rates : -12.5% 3.39%
Spot : -10% ; Credit : 50%
13 Market crash, rates up 1 ; Vol : 30% ; Rates : 12.5% -0.67%
Spot : -20% ; Credit : 75%
14 Market crash, rates up 2 ; Vol : 50% ; Rates : 12.5% 0.86%
Spot : -30% ; Credit : 100%
15 Market crash, rates up 3 ; Vol : 70% ; Rates : 12.5% 2.98%
Equity Credit Spot : 5% ; Credit : 25% ;
16 decorrelation 1 Vol : 0% ; Rates : 0% -1.36%
Equity Credit Spot : 5% ; Credit : 25% ;
17 decorrelation 2 Vol : 10% ; Rates : 0% -0.45%
Equity Credit Spot : 5% ; Credit : 25% ;
18 decorrelation 3 Vol : -10% ; Rates : 0% -2.26%
Equity Credit Spot : -5% ; Credit : -25%
19 decorrelation 4 ; Vol : 10% ; Rates : 0% 3.12%
Equity Credit Spot : -5% ; Credit : -25%
20 decorrelation 5 ; Vol : -10% ; Rates : 0% 1.44%
Equity Credit Spot : 0% ; Credit : 25% ;
21 decorrelation 6 Vol : 10% ; Rates : 0% -0.92%
Equity Credit Spot : 0% ; Credit : 25% ;
22 decorrelation 7 Vol : -10% ; Rates : 0% -2.70%
Spot : 5% ; Credit : -25% ;
23 Market rally 1 Vol : -10% ; Rates : 0% 1.72%
Spot : 5% ; Credit : -25% ;
24 Market rally 2 Vol : 0% ; Rates : 0% 2.63%
Spot : 5% ; Credit : -25% ;
25 Market rally 3 Vol : 10% ; Rates : 0% 3.55%
Spot : 10% ; Credit : -25%
26 Market rally 4 ; Vol : -10% ; Rates : 0% 2.59%
Spot : 10% ; Credit : -25%
27 Market rally 5 ; Vol : 0% ; Rates : 0% 3.49%
Spot : 10% ; Credit : -25%
28 Market rally 6 ; Vol : 10% ; Rates : 0% 4.41%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
29 1 Vol : -10% ; Rates : 12.5% 1.51%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
30 2 Vol : 0% ; Rates : 12.5% 2.41%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
31 3 Vol : 10% ; Rates : 12.5% 3.33%
Spot : 10% ; Credit : -25%
Market rally, Inflation ; Vol : -10% ; Rates :
32 4 12.5% 2.40%
Market rally, Inflation Spot : 10% ; Credit : -25%
33 5 ; Vol : 0% ; Rates : 12.5% 3.30%
Market rally, Inflation Spot : 10% ; Credit : -25%
34 6 ; Vol : 10% ; Rates : 12.5% 4.21%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
35 7 Vol : -10% ; Rates : 25% 1.32%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
36 8 Vol : 0% ; Rates : 25% 2.22%
Market rally, Inflation Spot : 5% ; Credit : -25% ;
37 9 Vol : 10% ; Rates : 25% 3.13%
Market rally, Inflation Spot : 10% ; Credit : -25%
38 10 ; Vol : -10% ; Rates : 25% 2.24%
Market rally, Inflation Spot : 10% ; Credit : -25%
39 11 ; Vol : 0% ; Rates : 25% 3.12%
Market rally, Inflation Spot : 10% ; Credit : -25%
40 12 ; Vol : 10% ; Rates : 25% 4.03%
Worst -2.70%
Stress tests assuming a third of risk arbitrage trades breaks
in case market drops by more than 10%
Scenario Description Impact
% of NAV
Spot : 10% ; Credit : 0% ;
1 Delta - spot up Vol : 0% ; Rates : 0% 0.75%
Spot : -10% ; Credit : 0%
2 Delta - spot down ; Vol : 0% ; Rates : 0% 1.21%
Spot : 0% ; Credit : 0% ;
3 Vega - vol up Vol : 10% ; Rates : 0% 0.90%
Spot : 0% ; Credit : 0% ;
4 Vega - vol down Vol : -10% ; Rates : 0% -0.88%
Spot : 0% ; Credit : 25% ;
5 Credit spread widen Vol : 0% ; Rates : 0% -1.82%
Spot : 0% ; Credit : -25%
6 Credit spread tighten ; Vol : 0% ; Rates : 0% 2.19%
Spot : -10% ; Credit : 50%
7 Market crash 1 ; Vol : 30% ; Rates : 0% 0.09%
Spot : -20% ; Credit : 75%
8 Market crash 2 ; Vol : 50% ; Rates : 0% 2.02%
Spot : -30% ; Credit :
100% ; Vol : 70% ; Rates :
9 Market crash 3 0% 4.64%
Spot : -10% ; Credit : 50%
Market crash, rates down ; Vol : 30% ; Rates :
10 1 -12.5% 0.28%
Spot : -20% ; Credit : 75%
Market crash, rates down ; Vol : 50% ; Rates :
11 2 -12.5% 2.23%
Market crash, rates down Spot : -30% ; Credit : 100% ;
12 3 Vol : 70% ; Rates : -12.5% 4.85%
Spot : -10% ; Credit : 50%
; Vol : 30% ; Rates :
13 Market crash, rates up 1 12.5% -0.09%
Spot : -20% ; Credit : 75%
; Vol : 50% ; Rates :
14 Market crash, rates up 2 12.5% 1.84%
Spot : -30% ; Credit :
100% ; Vol : 70% ; Rates :
15 Market crash, rates up 3 12.5% 4.44%
Equity Credit Spot : 5% ; Credit : 25% ;
16 decorrelation 1 Vol : 0% ; Rates : 0% -1.65%
Equity Credit Spot : 5% ; Credit : 25% ;
17 decorrelation 2 Vol : 10% ; Rates : 0% -0.73%
Equity Credit Spot : 5% ; Credit : 25% ;
18 decorrelation 3 Vol : -10% ; Rates : 0% -2.55%
Equity Credit Spot : -5% ; Credit : -25%
19 decorrelation 4 ; Vol : 10% ; Rates : 0% 3.40%
Equity Credit Spot : -5% ; Credit : -25%
20 decorrelation 5 ; Vol : -10% ; Rates : 0% 1.72%
Equity Credit Spot : 0% ; Credit : 25% ;
21 decorrelation 6 Vol : 10% ; Rates : 0% -0.92%
Equity Credit Spot : 0% ; Credit : 25% ;
22 decorrelation 7 Vol : -10% ; Rates : 0% -2.70%
Spot : 5% ; Credit : -25%
23 Market rally 1 ; Vol : -10% ; Rates : 0% 1.44%
Spot : 5% ; Credit : -25%
24 Market rally 2 ; Vol : 0% ; Rates : 0% 2.34%
Spot : 5% ; Credit : -25%
25 Market rally 3 ; Vol : 10% ; Rates : 0% 3.26%
Spot : 10% ; Credit : -25%
26 Market rally 4 ; Vol : -10% ; Rates : 0% 2.02%
Spot : 10% ; Credit : -25%
27 Market rally 5 ; Vol : 0% ; Rates : 0% 2.91%
Spot : 10% ; Credit : -25%
28 Market rally 6 ; Vol : 10% ; Rates : 0% 3.83%
Spot : 5% ; Credit : -25%
Market rally, Inflation ; Vol : -10% ; Rates :
29 1 12.5% 1.23%
Market rally, Inflation Spot : 5% ; Credit : -25%
30 2 ; Vol : 0% ; Rates : 12.5% 2.13%
Spot : 5% ; Credit : -25%
Market rally, Inflation ; Vol : 10% ; Rates :
31 3 12.5% 3.05%
Spot : 10% ; Credit : -25%
Market rally, Inflation ; Vol : -10% ; Rates :
32 4 12.5% 1.83%
Market rally, Inflation Spot : 10% ; Credit : -25%
33 5 ; Vol : 0% ; Rates : 12.5% 2.72%
Spot : 10% ; Credit : -25%
Market rally, Inflation ; Vol : 10% ; Rates :
34 6 12.5% 3.64%
Market rally, Inflation Spot : 5% ; Credit : -25%
35 7 ; Vol : -10% ; Rates : 25% 1.03%
Market rally, Inflation Spot : 5% ; Credit : -25%
36 8 ; Vol : 0% ; Rates : 25% 1.93%
Market rally, Inflation Spot : 5% ; Credit : -25%
37 9 ; Vol : 10% ; Rates : 25% 2.85%
Market rally, Inflation Spot : 10% ; Credit : -25%
38 10 ; Vol : -10% ; Rates : 25% 1.66%
Market rally, Inflation Spot : 10% ; Credit : -25%
39 11 ; Vol : 0% ; Rates : 25% 2.55%
Market rally, Inflation Spot : 10% ; Credit : -25%
40 12 ; Vol : 10% ; Rates : 25% 3.46%
Worst -2.70%
B. Private Equity Investments
The private equity investment, entered into on May 23, 2007 and
financed by a loan facility, is in the unlisted securities resulting
from the public offer made by Apollo on Countrywide Plc, the largest
network of UK real estate agents. BGHL holds Castle HoldCo 1 Ltd
shares and Castle HoldCo 2 Ltd debt securities.
The historical price paid by BGHL for the unlisted securities was
approximately £12m. The Investment Manager acquired its investment in
Castle HoldCo for BGHL from certain other funds it manages. The
purchase price paid by BGHL for the unlisted securities was equal to
the cost to those other funds of acquiring those unlisted securities.
The Castle HoldCo investment is reviewed by a valuation committee
which meets quarterly and has an independent member appointed by the
board of BGHL. The investment has been marked down after the August
quarterly review of the valuation committee.
The Company entered into a second small private equity investment in
Rasaland on June 27, 2008 for $10m. This investment is currently
marked at cost.
Both investments represent 1% of its assets under management.
Boussard & Gavaudan Asset Management update
Transaction in the Company'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 (public database >
notification > 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 (public database >
notification > price-sensitive press releases);
- the Company's website: www.bgholdingltd.com (Investor
Relations > Financial announcements).
We are pleased to welcome Carla Foucaud who is joining our team of
analysts. Since 2004, Carla has worked as an analyst in
Telecommunications, Media and Technologies in the investment banking
division of Goldman Sachs London.
Sincerely,
E. Boussard & E. Gavaudan
Contact information
Investors
Boussard & Gavaudan Asset Management, LP
Emmanuel Gavaudan
1 Dover Street
London W1S 4LA
Media
Financial Dynamics
Robert Bailhache / Nick Henderson
Holborn Gate
26 Southhampton Buildings
London WC2A 1PB
Disclaimer
This newsletter contains forward-looking statements, including
statements relating to market conditions and environments, estimated
performance of investment strategies, investment activities and
funding of BGHL. Such forward-looking statements involve unknown
risk, uncertainties and other factors, which may cause the actual
results, financial condition, performance or achievement of BGHL, or
market conditions or investment strategies, to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. BGHL does
not undertake an obligation to update its forward-looking statements
to reflect future events.
This announcement is not (i) an offer to sell or a solicitation of
any offer to buy the ordinary shares of BGHL (the "Securities") or
any other securities in the United States or in any other
jurisdiction, (ii) any invitation or inducement to engage in
investment activity or financial promotion of any kind, or (iii)
investment advice or a recommendation.
BGHL is established as an investment company domiciled in Guernsey.
BGHL has received the necessary approval of the Guernsey Financial
Services Commission and the States of Guernsey Policy Council. BGHL
is registered with the Dutch Authority for the Financial Markets as a
collective investment scheme under article 1:107 of the Dutch
Financial Markets Supervision Act.
You should always bear in mind that:
* all investment is subject to risk;
* results in the past are no guarantee of future results;
* the investment performance of BGHL may go down as well as up.
You may not get back all of your original investment; and
* if you are in any doubt about the contents of this communication
or if you consider making an investment decision, you are advised
to seek expert financial advice.
BGHL has not been and will not be registered under the US Investment
Company Act of 1940, as amended (the "Investment Company Act"). In
addition, the Securities have not been and will not be registered
under the US Securities Act of 1933, as amended (the "Securities
Act"). Consequently, the Securities may not be offered, sold or
otherwise transferred within the United States or to, or for the
account or benefit of, US persons except in accordance with the
Securities Act or an exemption therefrom and under circumstances
which will not require BGHL to register under the Investment Company
Act. Accordingly, US Persons acquiring the Securities are subject to
significant restrictions on transfer. In addition, US persons who
are not qualified purchasers (within the meaning of section 3(c)(7)
of the Investment Company Act) will be prohibited from purchasing the
Securities at any time, including on the secondary market. No public
offering of the Securities has been or will be made in the United
States.
This communication is for information purposes only and the
information contained in this communication should not be relied upon
as a substitute for financial or other professional advice.
[*] Estimated figures
---END OF MESSAGE---
http://hugin.info/139013/R/1256896/274200.pdf
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