Monthly Shareholder Report - November 2011

RNS Number : 1424U

BH Macro Limited

16 December 2011

 



		BH MACRO LIMITED BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: NOVEMBER 2011 ADV03042 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard (2011). All rights reserved.
		Important Legal Information and Disclaimer BH Macro Limited ("BHM") is a feeder fund investing in Brevan Howard Master Fund Limited (the "Fund"). Brevan Howard Asset Management LLP ("BHAM") and Brevan Howard Capital Management LP (together with BHAM, "Brevan Howard") have supplied the information herein regarding BHM's and the Fund's performance and outlook. BHAM is authorised and regulated by the Financial Services Authority (the "FSA") in the United Kingdom. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 and the handbook of rules and guidance issued from time to time by the FSA (the "FSA Rules"). The material relating to BHM and the Fund included in this report has been prepared by Brevan Howard and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in the BHM or the Fund. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to BHM and the Fund have been obtained or derived from sources believed by Brevan Howard to be reliable, but Brevan Howard makes no representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHM, the Fund and Brevan Howard expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. All investments are subject to risk. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. Tax treatment depends on the individual circumstances of each investor in BHM and may be subject to change in the future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in BHM, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice.  Potential investors in BHM should seek their own independent financial advice.  BHAM neither provides investment advice to, nor receives and transmits orders from, investors in the funds to which this material relates nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FSA Rules. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS

BH Macro Limited Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Securities Ltd. Listings: London Stock Exchange (Premium Listing) NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing)	Overview: BH Macro Limited ("BHM") is a closed-ended investment company, registered and incorporated in Guernsey on 17 January 2007 (Registration Number: 46235). BHM invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Master Fund Limited (the "Fund"). BHM was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 March 2007. Total Assets: $2,089mm1 1. Estimated as at 30 November 2011 by BHM's administrator, Northern Trust.
Summary Information	BH Macro Limited NAV per share (estimated as at 30 November 2011) Share Class NAV (USD mm) NAV per Share USD Shares 596.8 $19.41 EUR Shares 256.2 €19.62 GBP Shares 1,235.5 £20.02   BH Macro Limited NAV per Share % Monthly Change USD Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27 2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32 2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04 2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91 2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.18 0.40 -0.76 1.73* 12.63* EUR Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95 2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65 2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36 2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93 2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.29 0.42 -0.69 1.84* 13.50* GBP Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67 2008 10.18 6.85 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25 2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00 2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30* -0.45 1.03 2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.24 0.39 -0.73 1.77* 12.91* Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited. BHM NAV and NAV per Share data is provided by BHM's administrator, Northern Trust. BHM NAV per Share % Monthly Change is calculated by Brevan Howard. BHM NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee of 50bps per annum. NAV performance is provided for information purposes only. Shares in BHM do not necessarily trade at a price equal to the prevailing NAV per Share. * Estimated as at 30 November 2011. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 30 November 2011 % of Gross Market Value Level 1 56 Level 2 44 Level 3 0 Source: Brevan Howard * These estimates are unaudited and have been calculated by Brevan Howard using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets. Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.
Performance Review	During the month, the Fund made profits in interest rate trading. Small gains made in equity and FX trading were offset by small losses in commodity and credit trading. Monthly, quarterly and annual contribution (%) by the Fund to the performance of BHM USD Shares (net of fees and expenses) by strategy group Macro Rates FX EMG Equity Commodity Credit Systematic Total November 0.21 1.40 0.14 0.05 0.03 -0.05 -0.04 -0.01 1.73 Q1 0.91 -0.13 0.06 0.33 -0.05 -0.04 0.88 0.00 1.95 Q2 -1.23 2.10 -0.21 0.15 -0.14 0.02 -0.25 0.01 0.45 Q3 4.28 3.72 0.33 0.59 0.20 0.04 -0.27 0.06 8.93 QTD -0.65 1.75 -0.12 0.29 -0.06 -0.06 -0.13 -0.07 0.96 YTD 3.34 7.72 0.04 1.40 -0.06 -0.04 0.24 0.00 12.63 Monthly, quarter-to-date and year-to-date figures are estimated by Brevan Howard as at 30 November 2011, based on total performance data for each period provided by BHM's administrator, Northern Trust. Figures rounded to two decimal places. Methodology and Definition of Monthly Contribution to Performance: Attribution is approximate and has been derived by allocating each trader book in the Fund to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected. The above strategies are categorised as follows: "Macro": multi-asset global markets, mainly directional (for the Fund, the majority of risk in this category is in rates) "Rates": developed interest rates markets "FX": global FX forwards and options "EMG": global emerging markets "Equity": global equity markets including indices and other derivatives "Commodity": liquid commodity futures and options "Credit": corporate and asset-backed indices, bonds and CDS "Systematic": rules-based futures trading
Market Review and Outlook	Market Commentary US In November, the outlook for the US economy improved despite policy paralysis taking hold. Household consumption defied the odds by expanding in the face of declining real disposable personal income, heightened levels of market volatility and a stagnant housing market. Our view is that the gains in consumption are unsustainable unless the labour market picks up. However, recent news on the labour market has been mixed. On the one hand, initial claims for unemployment insurance have edged below 400,000 per week and the unemployment rate dropped to 8.6% in the latest release. On the other hand, job creation is barely keeping up with population growth and average hourly earnings have declined in three of the last six months.   Price inflation has eased recently. Producer prices and import prices are running roughly flat, but personal consumption inflation has dropped in the last three months to an annualised rate of 1%, easing any lingering concerns over inflation. Survey and market-based measures of longer-term inflation expectations have drifted to the lower end of their historical range. Contrary to our expectations, the deficit-reduction "super committee" failed to reach any agreement on tackling the fiscal crisis. In an increasingly partisan atmosphere leading up to the Presidential election next year, the Democrats have refused to compromise on spending cuts and the Republicans have refused to compromise on tax increases. As a consequence, automatic spending cuts are scheduled to begin in 2013. Unless there is significant progress, with Congress convening in a post-election lame-duck session, the combination of spending cuts and tax increases is likely to push the US economy into recession in 2013. Meanwhile, the Federal Reserve has been working on fine-tuning its communications strategy and a number of key officials have expressed sympathy for additional stimulus. EMU The last month has seen a race against time by European politicians who have struggled to complete initiatives aimed at lowering the cost of market financing for the main peripheral economies. In late November, euro area finance ministers approved the proposals for the European Financial Stability Facility ("EFSF") guidelines which will become operational on 1 January 2012. However, it has become clear that the planned degree of EFSF leverage cannot be realistically achieved in current market conditions. The EU summit on 9 December 2011 provided another occasion for policymakers to take bold steps towards a "fiscal compact" which imposes stringent fiscal rules and was put forward by the European Central Bank ("ECB") President Mario Draghi. However, the measures that were announced after the EU summit appeared to fall short of finding a final solution to the EMU crisis. On the economic front, in November the EMU composite purchasing managers' index (PMI) survey stabilised at a low level, after having recorded a steep fall in the previous months. The composite PMI indicator fell below the threshold signalling contraction in Germany for the first time since July 2009. Overall, indications stemming from both actual data and survey information point to an imminent contraction of economic activity in the euro area. In particular, data on covering industrial production, services PMI and retail sales, paints a particularly gloomy picture for the Spanish economy. Unsurprisingly, both the OECD and the ECB sharply revised downwards their GDP forecasts and both now predict economic stagnation in 2012. At its meeting on 8 December 2011, the ECB cut interest rates by a further 25bps. The ECB also announced additional non-standard measures in an attempt to mitigate the stress in the euro area banking sector and in the money markets. These additional measures included two 3-year refinancing operations, further relaxation of requirements for collateral to be posted in refinancing operations and the lowering of reserve requirements for banks. While these measures can be expected to alleviate the banks' funding problems, they also imply a deterioration in the risk profile of the ECB's own balance sheet. UK The outlook for the UK continues to deteriorate towards stagnation. Data over the past month have not deteriorated any further, but point to zero growth in the fourth quarter and risks are heavily skewed towards worse outcomes thereafter. Fiscal austerity measures continue to be a drag on the economy. The labour market, which had shown some strong employment growth earlier in the year, has worsened again and shows outright employment decline at a recessionary pace. The household sector continues to suffer: fiscal austerity, negative real income growth, stagnating house prices and high unemployment are all generating fierce headwinds. The recent additional weakness has come from the slowdown in the global manufacturing cycle and especially weak euro area growth, renewed tightening of financial conditions, as well as the drop in consumer and business confidence due to further escalation of the EMU crisis. Inflation remains elevated, but is likely to have peaked around the current level. We expect inflation to experience a sustained decline during 2012. Inflation expectations are beginning to reflect this future decline and are now well below their peak. Various measures of underlying inflationary pressure have either fallen further or have remained low, and as a consequence the high headline inflation should not constrain the actions of the Bank of England ("BoE"). In November, the BoE continued with its £75bn asset purchase programme announced in October. It is highly likely that a further round of asset purchases will be announced in February 2012. The fiscal outlook in the UK has deteriorated and now needs to incorporate the much weaker growth outlook. Growth was not only revised downwards this year, but next year as well. In addition, the loss of GDP relative to the earlier trend is thought to be permanent, i.e. there is no offsetting period of above-trend growth later on in the forecast. The impact is that the deficit is now predicted to be reduced more slowly, and to keep it on track the government has announced additional substantial spending cuts in 2015 and 2016. Given this severe fiscal environment, a sustained period of above-trend GDP growth appears unlikely in the next five years.   Japan After a buoyant rebound in the third quarter when GDP grew by an annualised 6.0% in real terms, the pace of activity in Japan is moderating in the fourth quarter. In November, the composite PMI fell back sharply below the 50 point threshold level from 52.4 to 48.9. While the Services PMI recorded the steepest drop, we note that the key manufacturing orders statistics dipped to 46.2, the lowest level since the tragic natural disasters in March. Actual data also signal moderation. October industrial production increased by 2.4% month-on-month, recovering only partially from the dip in September. Overall, the support from external demand is fading, as shown by both declining export volumes and PMI export orders. The output gap of the economy is not closing as production levels have not yet reached the pre-quake levels, and as a consequence deflationary pressures are intensifying again. Indeed, the pace of decline of the CPI excluding both food and energy accelerated in October, and according to the expectations provided by the Tokyo CPI, this trend is likely to have continued in November. China In China, both the official and the HSBC PMI suffered significant losses in November. In addition, the manufacturing PMI fell below the 50 threshold, dragged down by new orders. This is the first time that both surveys have fallen below 50 since early 2009. Worryingly, domestic demand was showing the bulk of the weakness according to both metrics, after picking up during the July-October period. As such, China's growth is likely to moderate in the near future. In November, actual industrial production indeed showed a deceleration, from 13.2% to 12.4%, which was slightly larger than expected by the market. Inflationary pressures are easing at a relatively rapid pace: the purchase price index in the manufacturing PMI fell to 44.4 in November, the lowest level since January 2009. In November, CPI inflation moderated, falling from 5.5% to 4.2% year-on-year. Against this backdrop, the People's Bank of China cut the reserve requirement ratio ("RRR") by 50bps, taking effect from 5 December 2011. The RRR cut came earlier than the market expected, showing that the Chinese government is concerned about growth prospects. Further RRR cuts are poised to follow, although a cut in official interest rates appears to be unlikely given still negative real interest rates.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

Risk Factors

Acquiring shares in BHM may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHM (and therefore the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for shares in BHM must be able to bear the risks involved. These include, among others detailed in BHM's Prospectus, the following:

• The Fund is speculative and involves substantial risk.

• The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund will invest in illiquid securities.

• Past results of the Fund's investment managers are not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile.

• An investor could lose all or a substantial amount of his or her investment.

• The investment managers have total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment managers.

• Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors' interests in the Fund and none is expected to develop.

• There are restrictions on transferring interests in the Fund.

• The investment managers' incentive compensation, fees and expenses may offset the Fund's trading and investment profits.

• The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.

• The Fund is not subject to the same regulatory requirements as mutual funds.

• A portion of the trades executed for the Fund may take place on foreign markets.

• The Fund is subject to conflicts of interest.

• The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.

• The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.

• The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.

The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in shares in BHM and therefore reference should be had to BHM's Prospectus and related offering documentation for a complete description of these and other relevant risks. 

 

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