BOUSSARD & GAVAUDAN HOLDING LIMITED

Transcription

1 BOUSSARD & GAVAUDAN HOLDING LIMITED a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registration number AUGUST 2010 STATEMENT Total value of the investments of BGHL based on the final NAV for the Euro & Sterling ordinary shares * 678 million as of 31 August 2010 NAV per share Euro ordinary share Sterling ordinary share BGHL s portfolio The proceeds of the initial and secondary public offerings have been invested into the Sark Fund (net of a certain amount retained by BGHL for working capital requirements and other requirements). In addition to having substantially 100% of its assets under management invested into the Sark Fund, BGHL has two investments in private equity companies. Euro Shares Sterling Shares Shares issued 52,417,985 1,932,277 Shares held in treasury 3,006,794 - Shares outstanding 49,411,191 1,932,277 A. SARK FUND LIMITED Note that trade examples detailed in each strategy below are among the best and worst performances of the month. COMMENTARY AND HIGHLIGHTS European equities markets performed poorly in August with the Eurostoxx 50 down 4.35% over the month, bringing its year-to-date performance to %. Volatilities on stock markets went up: the VDAX index moved to 23.3% from 20.6% and the VSTOXX index to 29.4% from 27.2%. Credit spreads widened with the itraxx crossover index at 531bps (+51bps). Volatility strategies Convertible bond arbitrage Convertible bonds (excl. mandatories) posted positive contribution to the performance of the fund in August, mostly as a result of the gains in our convertible restructuring trade in Theolia, and in our other trades in the low delta / credit sensitive part of the portfolio. * 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. 1

2 Following the closing in July of the 60m capital increase (which we partly underwrote) and of the debt restructuring for the French independent developer and operator of wind energy, Theolia, the company's share price surged very strongly from 1.05 per share (a level in line with the subscription price for the capital increase) to as high as 1.70 per share at the end of August. This occurred in extremely heavy volumes as more than 200% of the total outstanding number of shares traded over the month, highlighting the change in status of this stock, which is not considered as distressed anymore. This lifted the price of the (now restructured) convertible bond which given the increase in the conversion ratio now trades in line with its parity on a 100% delta (although the bond doesn't trade on swap given the lack of available stock borrow). Despite the weakness in Financials in Europe (European itraxx Financial Senior and Sub Indices were 33bps and 37bps wider respectively in August), the Fortis CASHES held up quite well, which we believe is essentially the result of the bond's still significant discount to its 'fair value' (when compared for instance with comparable tier one instruments issued by BNP Paribas). The rest of our convertible bond book continued to behave well, despite the selling pressure on some of our high delta names, which was somewhat unfavourable for outright investors on the back of falling equity markets, as the gamma gains we booked compensated for the (slight) decline in valuations. Mandatory convertible bond arbitrage Mandatory convertible bonds returned positively for the fund this month. This was primarily driven by the performance of the UBS BBVA mandatory exchangeable, which traded up on the back of cheapening options and the tightening skew on European financial names across the board, incl. BBVA. We continued to take our profits on the Fortis mandatory, at levels well above fair value. Unsurprisingly the European new issues market remained closed in August for both convertibles and mandatories. As is traditionally the case, we expect a reopening of the primary market in September, notably as potential convertibles issuers may try to take advantage of any rebound in equity prices, extremely low long-term interest rates, moderate credit spread levels, and above all, pent-up outright demand. Gamma trading August implied volatilities were stable and remained relatively expensive because of uncertainties related to world growth and the possibility of a double dip scenario. Realized volatilities on the other hand were much lower, dropping by more than 5 points from high 20s to low 20s levels. This made long gamma positions very costly as there were very few days throughout the month when markets moved enough to cover the cost of theta. We decided to run the books marginally long gamma at the end of July as August is often a calmer month with a lot of market participants being away. We were down with financial names suffering the most. Equity Strategies Equity strategies contributed negatively to the performance this month. Entering into August, we decided to reduce the equity exposure of the fund as we feared that the expected low liquidity of the month would harm the performance and create unnecessary risk. Nevertheless, we suffered on our core positions as they underperformed their hedges massively. During this month, the market suffered from disappointing macro publications and the resurgence of the risk of the double dip scenario. The market ended August down with the Eurostoxx 50 at -4.35% in a fairly low volatility due to the absence of many of the active market players. 2

3 On the micro side, corporates results were encouraging and as valuations look attractive in this market shakiness, we believe this could trigger corporate activity by the end of the year. We have seen the first sight of this activity in the United States and to a lesser extent in some medium size deals in the United Kingdom (Arriva, Tomkins, Chloride ) which could diffuse into the rest of Europe. Our asset allocation is still limited on the equity side and we are ready to seize any new opportunity. Credit strategies Credit strategies returned positively to the fund in August. Both capital structure and credit long/short strategies performed well, in a month where the key standout phenomenon was the outperformance of fixed income assets relative to equities and commodities. Government bonds produced their best performance for the year with a 3.90% rally in Bunds. In yield terms, 10yr Gilts, Bunds and UST were 49bps, 55bps and 44bps lower in August. Emerging market bonds also performed well with a monthly return of +2.51%. Cash credit indices managed to hold in fairly well despite the risk aversion and widening in CDS; European credits provided total returns on the month of +2.14% and +1.88% from Non-Financial and Corporates, respectively (7.14% and 6.86% year-to-date). The strong performance in fixed income markets came at the expense of equities markets. The fall in equity indices weighed on CDS where all itraxx indices closed the month at wider levels (Main +13bps; Crossover +52bps). Both our books were well positioned to benefit from the moves described above. In capital structure arbitrage, we partially monetized two special situations. In long/short strategies, we benefited from our unchanged stance since the beginning of the year: being theta neutral, and having our core investments hedged by longer duration single-name and index shorts. The moves across different asset classes (and especially the difference in behaviour between cash and synthetic credit indices) prove that markets are still on high alert to the risk of after-effects of the 2008 credit crisis. The recent slide in US data certainly upset markets in August. Despite good ISM and Non-Farm Payrolls data released in early September, the near-term risks seem biased towards more negative surprises. Further downward revisions to the outlook would weigh on credit spreads, but on the whole we believe corporate credit, although not a screaming buy, is relatively well placed to withstand a pure economic aftershock. We don t think such a convulsion would be as severe as the initial strike, not least considering that most corporates have deleveraged and that valuations (for BBB and BBs in general) offer something of a buffer. As such, we are comfortable in taking risk in higher quality credit based in the stronger Eurozone members. Trading Trading contributed positively to the performance of the fund. 3

4 B. PRIVATE EQUITY INVESTMENTS On top of its investment in the Sark Fund, BGHL may enter into private equity investments. BGHL has two investments in the portfolio. Rasaland BGHL entered into Rasaland in June 2008 for $10 million. Rasaland is a Maltese company structured as a private equity fund in terms of fees and organisation and dedicated to invest in land, land development and high-end resort developments in Mexico. The EUR/USD exposure is hedged by an FX forward which is rolled on a 3 month basis. DSO Interactive On 9 December 2009 and 19 February 2010, BGHL acquired a minority stake in DSO Interactive for a total consideration of 1.7 million (6.18% of the share capital and 5.33% on a fully diluted basis). DSO Interactive is a private company incorporated in France and Head quartered in Paris, where it employs over 122 people. DSO Interactive provides bad debt collection services to consumer creditors such as telecom operators, banks and specialised credit institutions. At the end of July 2010, in accordance with IFRS rules, both investments, which represent slightly more than 1% of the net asset value of BGHL, were marked at cost. C. BOUSSARD & GAVAUDAN ASSET MANAGEMENT UPDATE As of 1 September 2010, Sark Master Fund Limited s assets under management were approximately 1.15bn. 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: (public database > notification > insider-transactions 5:60 wft); - on the Company s website through a link to the AFM notification: (Investment Manager > Regulatory information). Transactions in the Company s own securities are also reported on: - the AFM website: (public database > notification > price-sensitive press releases); - the Company s website: (Investor Relations > Financial announcements). Sark Fund Limited, Sark Master Fund Limited and Boussard & Gavaudan Asset Management, LP have entered into side letters with investors which contain material terms providing such investors with supplementary information concerning the composition of Sark Master Fund Limited's portfolio for the purpose of portfolio aggregation and analysis. Non disclosure agreements have been signed with these investors Sincerely, E. Boussard & E. Gavaudan 4

5 Contact information Investors Boussard & Gavaudan Asset Management, LP 1 Dover Street London W1S 4L Media Financial Dynamics Holborn Gate 26 Southhampton Buildings London WC2A 1PB Disclaimer The Company is established as a closed-ended investment company domiciled in Guernsey. The Company has received the necessary approval of the Guernsey Financial Services Commission and the States of Guernsey Policy Council. The Company is registered with the Dutch Authority for the Financial Markets as a collective investment scheme pursuant to article 2:73 in conjunction with 2:66 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The Company is listed on Euronext Amsterdam and on the London Stock Exchange ("LSE"). This is not an offer to sell or a solicitation of any offer to buy any securities in the United States or in any other jurisdiction. This announcement is not intended to and does not constitute, or form part of, any offer or invitation to purchase any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law. Neither the Company nor the Sark Fund Limited has been, and neither will be, registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition the securities referenced in this announcement have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"). Consequently any such 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 the issuer of such securities to register under the Investment Company Act. No public offering of any securities will be made in the United States. 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. 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. VC