PERFORMANCE REPORT DECEMBER QUARTER 2006 MACQUARIE LIMITED PARTICIPATING SHARES ARBN 105 989 231
Market Commentary October has historically been a month characterised by investor nervousness, however October 2006 departed from that paradigm partly due to risk aversion landing on the shores of financial markets far earlier in the year. October saw global equity markets, credit markets and emerging markets rally strongly on the back of a favourable backdrop instigated by on-going mergers & acquisitions and leveraged buyout activity, good corporate earnings, falling oil prices and the markets' growing confidence that the US monetary tightening campaign is over. November was defined by a set of soft economic readings in the US, which provided a stronger endorsement of a soft landing environment and a muted inflation outlook in the US. Together with the insatiable global M&A activity, these factors were interpreted positively by investors and as a result global equity markets advanced across all major regions with the exception of Japan. December saw global equity markets finish the year on a strong note due to the factors outlined above as well as easing concerns over the outlook for global growth, which had placed downward pressure on financial markets in the earlier part of the year. By the end of December the S&P500 and the MSCI Europe delivered a return of 6% ~ 7% for the quarter. On the opposite side of the Pacific, equity markets across Asia continued to benefit from abundant liquidity and a generally positive macroeconomic and corporate earnings picture, resulting in an 11% advance by the MSCI AC Asia Pacific (USD) Index. Chinese equities stole the headlines as MSCI China surged 35% over the quarter, fuelled by a combination of factors including the gradual (as well as expectations of further) appreciation of the Chinese Renminbi, receding concerns over domestic Chinese policy and the unprecedented liquidity inflows into the local Chinese equity markets by domestic investors. Bond markets in both transition and developing markets (and across the whole credit spectrum from sovereign to high grade to distressed securities) advanced to varying degrees in reaction to easing US inflationary pressures and benign economic data. Global credit spreads continued to tighten into the end of the year, and volatility concerns remained largely withheld. In foreign exchange markets, the main theme for the quarter was the depreciation of the US dollar against the currencies of its trading partners, including a wide range of Asian currencies, due in part to expectations of widening growth differentials (reflecting diverging growth expectations) and declining interest rate differentials. Commodity markets, on the other hand, witnessed some consolidation in the price of crude oil in the US$60 to US$65 range, while soft commodity markets (such as corn, soybean and wheat) staged a strong bounce due to strong demand dynamics and dry US weather conditions. Hedge Fund Industry The hedge fund industry delivered a quarterly result of 5.4% as measured by the HFRI Fund of Funds Index (registering a return of 1.68%, 1.87% and 1.72% in October, November and December respectively). The best performing strategies for the quarter were Equity Long/Short and Event-Driven strategies followed by Relative Value and Tactical Trading strategies. With a strong global equity market backdrop, it was no surprise that Equity Long/Short strategies delivered circa 9% over the course of the fourth quarter this was skewed by the double-digit returns that were enjoyed by Equity Long/Short strategies in Asia ex-japan and Eastern Europe. Strong liquidity, solid corporate fundamentals, merger and acquisitions, share buybacks and leveraged buy-out activity continued to be supportive to equity markets. 2006 surpassed the record achieved at the break of this century when it comes to mergers and acquisitions. Announced deals set a record of US$3.6 trillion in 2006 with transactions targetting US and European companies reaching US$1.5 trillion and 1.4 trillion respectively. Equity-based event-driven strategies capitalised on this record deal flow and enjoyed a quarterly rate of return in excess of 5%. In addition, credit-based event-driven strategies generated positive results on the back of declining global credit spreads, low corporate default rates and generally high debt recoveries. Together, these factors provided a solid backdrop for positive performance for these strategies across a wide range of sectors and industries including airlines and energy.
CLASS A B C Inception date 01/12/2003 01/05/2004 01/07/2004 Portfolio Net Asset Value (NAV) per share $1.0977 1 $1.1631 $1.2088 One month return 2.10% 2.15% 2.28% Three month return 6.25% 6.08% 6.36% Six month return 5.37% 5.81% 6.36% One year return 4.68% 5.65% 7.53% Total return since inception 15.61% 21.19% 25.85% Annualised return since inception 4.82% 7.47% 9.63% Equinox Total Return Index 115.61 121.19 125.85 Current Capital Protected Level 2 $1.02 $1.061 $1.076 COMPONENT FUNDS Macquarie Absolute Return Strategies - Asia Cadogan Alternative Strategies Fund Ltd. Selectinvest Arbitrage/Relative Value Ltd. Vision Asia Maximus Fund Irongate Global Strategy Fund Aspect Diversified Program Campbell FME Large Fund Ltd. Denali Offshore Partners, Ltd. Japan Macro Fund Drake Global Opportunities Fund Convivo Absolute Sovereign High Yield Fund Returns are indicative only and are quoted ex-dividend. Past performance is not a reliable indicator of future performance. 1 Nominal share price 2 Capital Protection, Cash Dividend and Profit Lock-ins in respect of classes A, B, C, E and F of the Company are subject to the terms of the Capital Protection Agreement as described in the prospectus for the relevant share class. Profit Lock-ins and Cash Dividends are at the discretion of the Macquarie Equinox Limited. The information pertaining to investment performance of each share class set out above does not represent the prices payable on redemption or transfer. Redemption and transfer prices for each share class will be calculated in accordance with the methodology set out in the relevant prospectus; the Company s by-laws, as amended; and otherwise notified to investors from time to time. The above information is current as at 31 December 2006. Definitions Nominal Share Price (for Class A shares) - The NAV of the Equinox Portfolio adjusted such that company set up costs and Adviser Referral Fees are capitalised and amortised over the Company s first 3 year trading period, divided by the number of shares. Equinox Total Return Index - An accumulation index of the Nominal Share Price or the Equinox Portfolio NAV adjusted for the effect of Cash Dividends.
COMPONENT FUND COMMENTARY Tactical Traders E F 01/12/2004 01/04/2005 $1.0406 $1.0472 2.12% 2.52% 5.94% 5.17% 2.98% 3.44% 2.64% 2.76% 8.18% 7.83% 3.85% 4.40% 108.18 107.83 $1.000 $1.000 Emerging Market - Credit Diversified Funds Campbell FME Large The medium-term trendfollower/systematic fundamental manager performed very strongly for the quarter as a result of gains from long positions in equity indices, short positions in interest rate securities and profitable trading in the currency sector. Aspect Diversified Program The medium-term trend-following manager produced very strong profits for the quarter as a result of long positions in stock indices and metals in combination with short positions in the energy sector. Denali Offshore Partners, Ltd. Denali produced a small profit for the quarter. Trading in most underlying asset classes was profitable with global fixed income, metals and energy trading providing the largest gains. Drake Global Opportunities Fund Drake produced a strong result for the quarter primarily on the back of profitable interest rate security trading in transition and developing markets, namely Mexico, Poland and Brazil. Trading in currencies and in the equity markets slightly detracted from performance. Japan Macro Fund Japan Macro produced a solid return for the quarter due mainly to short positions in Japanese and US bonds. Trading in currencies also proved profitable while losses in December meant that trading in the equity market cost them during the quarter. Convivo Absolute Sovereign High Yield Fund - Convivo performed strongly during the quarter capturing substantial profits from trades in local currency debt in Latin America, Africa/Middle East and Asia as the economic backdrop for emerging markets continued to improve. Cadogan Alternative Strategies Fund Ltd. Cadogan performed well during the quarter on the back of their exposure to a generally strong US equity market and also as a result of one of their Equity Long/Short funds in Asia delivering an outsized return. Macquarie Absolute Return Strategies Asia This Asianfocused multi-strategy multi-manager fund posted a solid return for the quarter by producing positive returns in all three months. Across the portfolio, all investment strategies except Japan Equity Long Short delivered a positive return for the quarter with the China and India Equity Long Short funds performing extremely well. Vision Asia Maximus Fund The Asian focused multi-strategy multi-manager fund delivered a good performance in the last quarter of 2006. The fund posted positive returns in all three months and produced the best quarterly return for 2006. The Pan- Asian Equity Long Short component of the fund was the largest contributor to performance while the Japan Equity Long/Short component continued to under-perform. Selectinvest Arbitrage/Relative Value Ltd. Selectinvest delivered a strong result for the quarter. Returns were driven by the underlying Event Driven funds which benefited from the continued strengthening of corporate financial conditions during this expansion phase of the business cycle. Irongate Global Strategy Fund - Irongate experienced a very strong quarter with almost all of the underlying strategies making a positive contribution. The underlying Equity Long/Short and the Multi-strategy funds were the main drivers of performance.
NEWS Reduction in the Equinox Management Fee Improved Monthly NAV Reporting Change to the Equinox Component Funds Tactical Trader Changes Annual Investor Forum Increasingly the underlying funds across the different Equinox series have been rationalised with core holdings in a smaller number of funds. The Risk Advisor has also flagged further operational effciency measures which will be advised to investors closer to implementation. Due to the operational efficiencies gained by the Risk Advisor, the fees to be charged for their services effective 1 January 2007 will be reduced to 0.75% per annum (before GST) of the notional exposure of the Equinox Portfolio investments (excluding Security Deposits). We will now be able to provide monthly Net Asset Values in a more timely manner as a result of a new policy that has been adopted. This policy will enable us to finalise monthly Net Asset Values based on estimates provided by the third party underlying managers, rather than final figures. A change is being made to the Macquarie Equinox Limited ( Equinox ) investment portfolios ( Equinox Portfolios ). This change relates to the diversified fund component of the Equinox Portfolios and impacts class E of Equinox Participating Shares. The change is the removal of Vision Asia Maximus Fund ( Vision ) from the Equinox Portfolios and replacement with Macquarie Absolute Return Strategies Asia ( MARSA ). MARSA is already a component fund in the portfolios underlying classes A, B, C and F of Equinox. The redemption from Vision is being implemented in two stages, beginning 1 January 2007. MARSA is an Asian-focused multi-strategy multi-manager fund that is managed by MQ Capital Pty Limited ( MQ Capital ). MQ Capital will be fully rebating the fees charged by MARSA to Equinox, and accordingly MARSA should be viewed as a vehicle through which Equinox can access a portfolio of high quality, limited capacity Asian-focused funds at no additional management or performance fee. Plans are under way to improve the operation and management of the Tactical Trader component of the Equinox portfolios via a single investment vehicle. These plans are still in their initial planning stages and investors will be updated during their progression. We are canvassing investor interest in an Annual Investor/Adviser Forum where you would be able to hear directly from the Equinox team about the performance of the shares in Macquarie Equinox Limited. If you would be interested in attending the proposed Forum please email us at equinox@macquarie.com.au indicating your interest and the closest capital city you would like to attend.
Contact details For further information, including monthly performance figures and interest rates for borrowers, please contact the Macquarie Equinox Service Centre: 1800 025 513 or 02 8232 1181 equinox@macquarie.com.au www.macquarie.com.au/equinox The information relating to classes A, B, C, E and F Participating Shares ("Shares") in Macquarie Equinox Limited ARBN 105 989 231 ("Company") has been prepared by Macquarie Securities (Australia) Limited ABN 58 002 832 126 ("MSAL"), the arranger and a holder of an Australian Financial Services Licence. The offer of Shares was made under the relevant Prospectus relating to that class of Shares and is now closed. The information provided is general advice only and does not take account of your objectives, financial situation or needs. Each investor should consider the appropriateness of this advice having regard to these matters and read the relevant Prospectus. The Prospectus for each fund is available on 1800 025 513. Past performance is not a reliable indicator of future performance. The distribution of the information in jurisdictions outside Australia may be restricted by law and persons into whose possession the information comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of an applicable jurisdiction. Investments in the Shares are not deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 ("Macquarie") or any Macquarie Group company and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. None of Macquarie or any other Macquarie Group company guarantees the performance of the Shares, the repayment of capital from the Shares or any particular rate of return. The information in this document is current as at 31 December 2006 for performance information and otherwise as at 31 January 2007.