Interim / Quarterly Report • Sep 9, 2020
Interim / Quarterly Report
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INTERIM REPORT AND UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2020
| Company Overview | |
|---|---|
| Summary Information | 1 |
| Strategic Review | |
| Chairman's Statement | 2 |
| Investment Adviser's Report | 5 |
| Governance | |
| Statement of Principal Risks and Uncertainties | 12 |
| Statement of Directors' Responsibilities | 12 |
| Independent Review Report | 13 |
| Financial Statements | |
| Unaudited Condensed Statement of | |
| Comprehensive Income | 14 |
| Unaudited Condensed Statement of | |
| Changes in Shareholders' Equity | 15 |
| Unaudited Condensed Statement of | |
| Financial Position | 16 |
| Unaudited Condensed Statement of Cash Flows | 17 |
| Notes to the Unaudited | |
| Condensed Financial Statements | 18 |
| Additional Information | |
| Portfolio Statement (unaudited) | 36 |
| Management and Administration | 38 |
| Appendix – Alternative Performance Measures | 39 |
| 30 June 2020 (unaudited) |
31 December 2019 (audited) |
|---|---|
| US\$229,834,062 | US\$343,158,910 |
| US\$0.4914 | US\$0.7580 |
| US\$0.4500 | US\$0.6775 |
| (8.42%) | (10.62%) |
| 0.41% | 0.22% |
| 1.21% | 1.31% |
| Discount to Net Asset Value |
1See "Appendix" on page 39.
2Total ongoing charges, calculated in accordance with the AIC guidance, is at the Company level only for the year divided by the average NAV for the period/year. Charges of the underlying Master Funds are not included. See "Appendix" on page 41. 3Total ongoing charges, calculated in accordance with the AIC guidance, including the Company and the underlying funds divided by the average NAV for the period/year. See "Appendix" on page 41.
Fair Oaks Income Limited (the "Company") was registered in Guernsey under the Companies (Guernsey) Law, 2008 on 7 March 2014. The Company's registration number is 58123 and it is regulated by the Guernsey Financial Services Commission as a registered closed-ended collective investment scheme under The Registered Collective Investment Scheme Rules 2015. The Company is listed and began trading on the Specialist Fund Segment (previously Specialist Fund Market) ("SFS") of the London Stock Exchange on 12 June 2014.
The Company makes its investments through FOMC II LP (the "Master Fund II") in which the Company is a limited partner and indirectly through FOIF LP (the "Master Fund") (the "Master Fund" and the "Master Fund II" together the "Master Funds"). The Master Fund II was registered in Guernsey on 24 February 2017 and the Master Fund was registered in Guernsey on 7 May 2014 under The Limited Partnerships (Guernsey) Law, 1995, as amended. During the six month period ended 30 June 2020, the Master Fund II allowed three new limited partners to enter the partnership and at 30 June 2020, the Master Fund II had five limited partners, including Fair Oaks Founder II LP, a related entity. At 30 June 2020, following the admission of the three new limited partners, the Company had a 71.80% holding in the Master Fund II. On 1 April 2019, the Company sold its direct holding of 11.31% in the Master Fund, but indirectly remains invested in the Master Fund through the Master Fund II.
At 30 June 2020, the Company on behalf of the 2017 Shares had a 71.80% (31 December 2019: 100%) holding in the Master Fund II, which in turn had a holding of 66.20% (31 December 2019: 66.20%) in the Master Fund. The General Partner of the Master Fund II and Master Fund is Fair Oaks Income Fund GP Limited (the "General Partner" or "GP").
The Master Fund II is also invested into Cycad Investments LP ("Cycad"). Cycad is a Limited Partnership registered in the United States of America on 2 June 2017. Aligned with the Company's investment policy, Cycad also invests into CLOs.
Fair Oaks Founder LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of the Master Fund and Fair Oaks Founder II LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of Master Fund II.
The investment objective of the Company is to generate attractive, risk-adjusted returns, principally through income distributions.
The investment policy of the Company is to invest (either directly and/or indirectly through the Master Fund and/ or Master Fund II) in US and European Collateralised Loan Obligations ("CLOs") or other vehicles and structures which provide exposure to portfolios consisting primarily of US and European floating-rate senior secured loans and which may include non-recourse financing.
If at any time the Company holds any uninvested cash, the Company may also invest on a temporary basis in the following Qualifying Short Term Investments:
The aggregate amount deposited or invested by the Company with any single bank or other non-government counterparty (including their associates) shall not exceed 20% of the Net Asset Value ("NAV") in aggregate, and also of the NAV of each share class, at the time of investment. The Company cannot make any other types of investments without shareholder consent to a change of investment policy by ordinary resolution at a general meeting of the Company.
The independent Board of the Company is pleased to present its Interim Report and Unaudited Condensed Financial Statements for the financial period ended 30 June 2020.
The Company's NAV and share price were impacted by the COVID-19 induced sell-off in March, generating a total return of -33.3% and -31.5%1 respectively in H1 20202 . The Company's Shares closed at a price of 45.0 US cents as of 30 June 2020, representing a discount to NAV of 8.4%.
Figure 1.1 – Total return - NAV and share price H1-20202
The total return for the JP Morgan US leveraged loan index in H1 2020 was down 4.5%3 . In the same period, the JP Morgan US high yield was down 6.2%4 while the JP Morgan CLO B rated index was down 19.2%5 .
| Table 1.1 – Total returns in H1 2020 | |||
|---|---|---|---|
| -------------------------------------- | -- | -- | -- |
| H1 2020 total return | |
|---|---|
| Company's Share price | -31.5% |
| Company's NAV | -33.3% |
| JP Morgan US High Yield index | -6.2% |
| JP Morgan US Leveraged Loan index | -4.5% |
| JP Morgan Post-Crisis CLOIE B rated index | -19.2% |
The Company declared a 0.70 US cents per share dividend monthly in January and February. On 20 March, and in light of the uncertainty in economies and markets caused by the COVID-19 pandemic, the Board resolved to suspend the declaration of dividend payments.
2 Performance of the 2017 Shares. Data as at 30 June 2020. Source: London Stock Exchange.
1 See "Appendix" on page 40.
3 JP Morgan Leveraged loan index. Data as at 30 June 2020.
4 JP Morgan Domestic High yield index. Data as at 30 June 2020.
5 JP Morgan Post-Crisis CLOIE index. Data as at 30 June 2020.
The Board recognised the importance of dividends for Shareholders but believed that suspension was the appropriate reaction to unprecedented circumstances.
On 20 July 2020, and in light of the continued performance and the increased resilience of Master Fund II's investments, the Board decided to resume the payment of dividends, on a quarterly basis and at a variable rate. The Company announced the first quarterly dividend at the end of July in an amount of 1.5 cents per share.
The Master Fund II received distributions on all equity investments in April and, with all investments passing their over-collateralisation tests, distributions were also received on all investments in July. Furthermore, the opportunistic investments made in the second quarter resulted in the portfolio consisting of 48% CLO debt by market value. This increased the resilience and predictability of Master Fund II and the Company's cash flow.
In total, the Company received US\$5.8 million of income distributions from the Master Fund II in H1. A further US\$7.5m distribution was received in July.
Figure 1.3 – Cumulative dividends per share since inception (US cents per share):
On 9 January 2020, the Company declared a monthly interim dividend of 0.7 US cents per 2017 share in respect of the month ended 31 December 2019 to the 2017 Shares, which was paid on 30 January 2020. The ex dividend date was 16 January 2020.
On 22 January 2020, the Company announced a 25% reinvestment of management fees. The 2017 Shares were trading at a discount to the 31 December 2019 published quarter end NAV. The Company's 2017 prospectus stated that in the event that the 2017 Shares trade at discount to any quarter end NAV, calculated on the date that the relevant NAV is published, 25% of that quarter's investment management fees (in respect of the 2017 Shares) would be reinvested to purchase 2017 Shares in the secondary market. Accordingly, the Company was notified that, following the announcement dated 16 January 2020 regarding the NAV as at 31 December 2019, Fair Oaks Income Fund (GP) Limited has purchased 271,851 2017 Shares in the secondary market.
On 6 February 2020, the Company declared a monthly interim dividend of 0.7 US cents per 2017 share in respect of the month ended 31 January 2020 to the 2017 Shares, which was paid on 27 February 2020. The ex dividend date was 13 February 2020.
On 3 March 2020, the Company declared a monthly interim dividend of 0.7 US cents per ordinary share in respect of the month ended 29 February 2020 to the 2017 Shares, which was paid on 26 March 2020. The ex dividend date was 12 March 2020.
On 30 March 2020, the Company announced in light of this ongoing uncertainty in economies and markets caused by the COVID-19 pandemic, that the Board had resolved to suspend the declaration of dividend payments.
The Board and the Investment Adviser recognise the importance of dividends for Shareholders but believe that suspension was the appropriate reaction to the unprecedented circumstances. In the near term the uncertainty lead to rebased market assumptions as to credit performance, which was expected to materially constrain the Company's income calculated using the effective interest rate methodology and therefore would mean that any dividends declared would have to be substantially funded from the Company's capital.
It was premature to seek to quantify the fundamental impact of the pandemic, which was dependent on an array of factors including the effectiveness of government intervention, but over time there was the risk of underlying CLO managers being required to divert cash flows from CLO subordinated notes to purchase additional loan collateral in response to increased credit downgrades and defaults. At the portfolio level the Investment Adviser also took steps to minimise mark-to-market risk, retaining a prudent reserve of cash to cover any foreign exchange hedge and warehouse financing needs.
The dislocation in the credit markets created investment opportunities, which was a factor in the allocation of future cash flows as the Company continues to seek to maximise shareholders' total return over the long term.
On 17 April 2020, the Company announced an issue to satisfy market demand of 7,194,623 new 2017 Shares (the "New Shares") at an issue price of US\$0.372 per New Share, representing a premium of approximately 2% to the latest published NAV.
On 24 April 2020, the Company announced an issue to satisfy market demand of 4,900,000 new 2017 Shares (the "New Shares") at an issue price of US\$0.372 per New Share, representing a premium of approximately 2% to the latest published NAV.
On 27 April 2020, the Company announced an issue to satisfy market demand of 2,935,000 new 2017 Shares (the New Shares") at an issue price of US\$0.372 per New Share, representing a premium of approximately 2% to the latest published NAV.
The net proceeds of the New Share issue were invested in accordance with the Company's investment policy, with the Master Fund II investing in CLO debt securities in the secondary market, which the Investment Adviser believes offer attractive riskadjusted returns over the medium term.
On 20 July 2020, in light of the continued performance and the increased resilience of Master Fund II's investments, the Board decided to resume the payment of dividends, on a quarterly basis and at a variable rate.
On 30 July 2020, the Company declared an interim dividend of 1.5 US cents per 2017 share in respect of the quarter ended 30 June 2020 to the 2017 Shares, which was paid on 20 August 2020. The ex dividend date was 6 August 2020.
Chairman
9 September 2020
The first half of 2020 was a time of extreme volatility across markets. This report aims to summarise and explain the most relevant events during the period but please refer to the Company's factsheets, available on the Company's website, www.fairoaksincome. com, for a more detailed month-by-month, analysis of the loan and CLO markets and a review of the fund's actions and positioning changes since December 2019.
As at 30 June 2020, Master Fund II1 held 14 CLO equity positions, 27 BB rated CLO mezzanine notes and 16 B rated CLO mezzanine investments, offering exposure to over 1,000 loan issuers2 and 31 CLO managers.
The portfolio has changed materially in the first half of 2020 moving from 95% exposure to CLO subordinated notes and 88% exposure to US CLOs, to 52% exposure to CLO subordinated notes, 32% to BB rated CLO notes and 15% to B rated CLO notes and a more balanced geographical mix (52% USD and 48% EUR).
These changes were motivated by an early de-risking of the portfolio (sale in January of four CLO subordinated notes and purchase of four B rated notes and one BB rated note) and the further acquisition of rated notes at deep discounts during weeks following the general market dislocation experienced as a consequence of COVID-19 in March.
As of 30 June 2020, all investments in the portfolio were in compliance with their relevant over-collateralisation tests and all made distributions in July.
Figure 2.2 – Master Fund II equity investments - compliance with over-collateralisation tests
1 References to FOMC II LP refer to Master Fund II, which launched in April 2017 to continue the investment strategy of the Company. The Company via the 2017 Shares (created in April 2017) invests through Master Fund II.
2 Based on the underlying loans in CLOs in which Master Fund II holds equity. This includes the equity positions in FOIF LP of which Master Fund II holds a percentage ownership. Data as at 30 June 2020.
The Investment Adviser continues to believe that CLO mezzanine notes, in particular those backed by European loans, have the potential to offer a compelling risk-adjusted return and be highly complementary to the CLO subordinated note portfolio given their current valuations, resilience to defaults and higher over-collateralisation than similarly-rated US CLO notes.
| CLO B Note3 | CLO BB Note3 | BB Bank Loan4 | B Bank Loan4 | |
|---|---|---|---|---|
| Current Price | 65-80c | 80-93c | 97.32c | 94.11c |
| Spread to Maturity | 10.5%-15.0% | 7.5%-9.5% | 3.7% | 5.7% |
| Upside (yield to Par in 2 years) |
20.9%-34.1% | 9.8%-18.4% | 4.4% | 7.3% |
| Break-even default rate5 | 8.7% | 12.5% | 10.4% | 15.5% |
Figure 2.3 – EUR CLO notes' strong relative value compared to EUR corporate loans
The Master Fund II has completed 36 CLO BB and B rated mezzanine investments (US\$129 million par, US\$96 million cost) at prices ranging from 47.3c to 84.0c since March 2020.
Figure 2.4 – CLO manager diversification of Master Fund II6 CLO
5 Fair Oaks analysis based on latest BB and B investments completed as at 30 June 2020. Constant annual default rate to maturity required to achieve a 0% IRR. Assumes 65c recovery rate. Other assumptions available on request.
6 Based on nominal holding per CLO manager, as at 30 June 2020. Percentages may not add up to 100% because of rounding errors.
3 BMorgan Stanley, as at 30 June 2020. Coupon based on average coupon for new issue EUR CLOs issued in 2019. Loan Market Intelligence as at 30 June 2020.
4 S&P Global Market Intelligence.
The spread of the Credit Suisse Leveraged Loan index rose from Libor+4.61% as at 31 December 2019 to Libor+7.00% as at 30 June 2020 while the spread of the BB rated loans (a more appropriate proxy for CLO's higher average credit quality holdings), rose from Libor+2.62% to Libor+4.52% in the same period7 .
We continue to be cautious about credit quality in the loan market although average leverage from US large corporates, defined as corporates with EBITDA of more than US\$50 million, fell marginally from 5.2x at the end of 2019 to 5.1x in Q2 2020 (Figure 2.5)8 while interest coverage rose from 3.4x to 4.2x (Figure 2.6)9 .
Figure 2.5 – Average debt multiples of large corporate loans10
The rolling twelve-month default rate increased to 3.23% as of 30 June 202012. A total of 57 loan issuers tracked by the US S&P/ LSTA index have defaulted this year with "Services and Leasing", being the largest sector by number with 10 defaults, followed by "Retail" (8), "Energy: Oil and Gas" (6) and "Telecommunications" (4)13.
7 Based on 3-year discount margin of BB rated loans from Credit Suisse Leveraged loan index. 8 LCD's Quarterly Leveraged Lending Review: Q2 2020 from S&P Global Intelligence. Analysis excludes media and telecom loans prior to 2011. EBITDA adjusted for prospective cost savings or
synergies. 9 LCD's Quarterly Leveraged Lending Review: Q2 2020 from S&P Global Intelligence. Based on non-adjusted EBITDA/Cash interest which excludes media and telecom loans prior to 2011. 10 LCD's Quarterly Leveraged Lending Review: Q2 2020 from S&P Global Intelligence. Analysis excludes media and telecom loans prior to 2011. EBITDA adjusted for prospective cost savings or
synergies. 11 LCD's Quarterly Leveraged Lending Review: Q2 2020 from S&P Global Intelligence. Based on non-adjusted EBITDA/Cash interest which excludes media and telecom loans prior to 2011. 12 S&P/LSTA Leveraged Loan index by principal amount. Data as at 30 June 2020. 13 Based on S&P/LSTA defaults' list and Moody's industry classification. Data as at 30 June 2020.
The distressed ratio in the US, defined as percentage of loans trading below 80c, increased substantially in March, to 24%, but has since decreased (Figure 2.7).
Figure 2.7 – Distressed ratio on US loans14
According to a quarterly survey published by S&P Global Intelligence in June 2020, loan managers expect the default rate to increase to 6.08% in June 2020 (Figure 2.8)15. Negative sentiment is considerably greater than six months ago, where from the same survey of loan managers predicted a default rate of 2.04% for June 202016.
Figure 2.8 – Lagging 12-month default rate: historical and current expectations (forecast through to December 2020)15
14 S&P/LSTA Leveraged Loan index. Distress ratio by par amount. The definition of distressed loans is defined as the percentage of loans trading below 80c. Data as at 30 June 2020. 15 Default survey by LCD, an offering on S&P Global Intelligence. Survey conducted in June 2020. 16 Default survey by LCD, an offering on S&P Global Intelligence. Survey conducted in June 2019.
A potential positive factor continues to be the very limited amount of loans set to mature over the next three years. The notional of loans maturing in 2021-2023 has fallen from US\$355 billion as of 28 June 2019 to US\$193 billion as of 30 June 2020 (Figure 2.9)17.
Figure 2.9 – Maturity wall of the US loan market of performing loans (US\$billion)17
The CLO market has experienced significant volatility in 2020 and has underperformed high yield bonds and loans in the recovery phase.
Figure 2.10 – EUR CLO spreads18
| March 2020 | |||||||
|---|---|---|---|---|---|---|---|
| June 2020 | May 2020 | April 2020 | (intra month wides) February 2020 | 2018 wides | 2016 wides | ||
| AAA | 150-175 | 160-180 | 170-250 | 300-400 | 130-150 | 50-75 | 175-200 |
| AA | 210-260 | 200-250 | 270-350 | 500-700 | H100s | L100s | 300a |
| A | 285-385 | 250-300 | 375-475 | 650-850 | M200s | H100s | 400a |
| BBB | 450-600 | 400-700 | 550-800 | 850-1000 | L400s | 200s | 550-700 |
| BB | 750-950 | 700-1050 | 1000-1400 | 1300-1500 | L600s-M800s | 400s | 850-1050 |
Figure 2.11 – US CLO spreads18
| March 2020 | |||||||
|---|---|---|---|---|---|---|---|
| June 2020 | May 2020 | April 2020 | (intra month wides) February 2020 | 2018 wides | 2016 wides | ||
| AAA | 165-210 | 160-200 | 180-275 | 400-600 | 115-125 | 92 | 180-265 |
| AA | 220-310 | 225-275 | 265-375 | 600s | 175-190 | 135 | 270-425 |
| A | 265-380 | 250-325 | 385-500 | 700s | 240-265 | 170 | 400-750 |
| BBB | 415-700 | 450-800 | 600-1000 | 800-1000 | 340-390 | 250 | 600-1200+ |
| BB | 785-1350 | 900-1,500 | 1100-1850 | 1400+ | L700s-M900s | 495-575 | 1050-1700+ |
17 LS&P Global Intelligence, Q2-2020. Distribution by year of maturity. 18 Source: Morgan Stanley.
Figure 2.12 –CLO BB and B rated notes, high yield bonds and loan performance
| Price (13-Feb) | Price (25-Mar) | Price (21-Jul) | |||
|---|---|---|---|---|---|
| US High Yield | 99.1c | US High Yield | 78.3c | US High Yield | 93.8c |
| US Lev Loan | 98.5c | US Lev Loan | 79.8c | US Lev Loan | 95.4c |
| US CLO BB | 95.1c | US CLO BB | 53.3c | US CLO BB | 80.0c |
| US CLO B | 86.7c | US CLO B | 46.5c | US CLO B | 60.2c |
| \$100c \$90c \$80c Average price (\$c) \$70c \$60c \$50c \$40c |
CLO trading volumes in in the first half of 2020 have been very high, with average monthly volumes in "bids wanted in competition" ("BWIC") auctions exceeding US\$10 billion in March, the most active month since records started in 2014 and well above the US\$3.2 billion monthly average19.
CLO BB CLO B High Yield BB/B Bank Loans
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20
Figure 2.13 – Global BWIC Volumes19
\$30c
19 Citibank. Data as at 30 June 2020.
We will continue to seek the best risk-adjusted opportunities for Master Fund II in the CLO equity and debt primary and secondary markets.
We believe that the Company continues to offer a compelling investment opportunity for those investors looking to invest in global senior secured bank loans through CLOs:
• The Company will start returning any principal received from the Master Fund II after June 2021. Final maturity June 2026.
• The Investment Adviser believes that the structure of the Company has attracted a broader, more global, shareholder base.
9 September 2020
The Company is a feeder fund investing its assets into the Master Fund II. Its principal risks include operational, investment, regulatory and financial risks. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal Risks and Uncertainties' within the Directors' Report of the Company's last Annual Report for the year ended 31 December 2019. With the exception of the Pandemic (COVID-19) risk as detailed below, the Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.
The economic disruption related to COVID-19 in the first half of 2020 has had significant short-term impacts, increasing the number of defaults in the loan markets and depressing valuations of the Master Fund II's investments. While all the Master Fund II's investments continue to comply with their over-collateralisation tests and make cash distributions to the Master Fund II, the medium and long-term impacts of COVID-19 disruption on the fundamental performance of the Master Fund II's investments and on their valuation will depend on the future development of the virus and potential vaccines, restrictions on, and changes in, consumer behaviour and mitigating actions taken by governments. In addition to the portfolio de-risking that took place in the first half of 2020 (increasing the proportion of rated CLO investments), the Investment Adviser continues to closely monitor the performance of the Master Fund II's investments and update the Company on current and emerging risks. The Investment Adviser also carries out extensive due diligence on Master Fund II's underlying investments before acquisition and they will ensure adequate diversification of the underlying assets is achieved.
We confirm that to the best of our knowledge:
The Directors are also responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions
Signed on behalf of the Board by:
Jon Bridel
Director 9 September 2020
We have been engaged by Fair Oaks Income Limited (the "Company") to review the unaudited condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 of the Company which comprises the Unaudited Condensed Statement of Comprehensive Income, the Unaudited Condensed Statement of Financial Position, the Unaudited Condensed Statement of Changes in Shareholders' Equity, the Unaudited Condensed Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules (the "DTR") of the UK's Financial Conduct Authority (the "UK FCA").
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34.
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
for and on behalf of KPMG Channel Islands Limited Chartered Accountants, Guernsey 9 September 2020
For the six month period ended 30 June 2020
| 1 January 2020 to 30 June 2020 (unaudited) |
1 January 2019 to 30 June 2019 (unaudited) |
||
|---|---|---|---|
| Note | US\$ | US\$ | |
| Income | |||
| Net (losses)/gains on financial assets at fair value through profit or loss | 5 | (108,842,611) | 9,234,045 |
| Investment income | 3,215 | 144,693 | |
| Net foreign exchange (losses)/gains | (52,848) | 32,987 | |
| Total income | (108,892,244) | 9,411,725 | |
| Expenses | |||
| Investment advisory fees | 6 | 93,086 | 9,301 |
| Audit and interim review fees | 73,547 | 23,211 | |
| Administration fees | 6 | 76,053 | 73,030 |
| Directors' fees and expenses | 6 | 81,449 | 82,853 |
| Legal and professional fees | 21,405 | 39,423 | |
| Other expenses | 157,340 | 152,777 | |
| Total operating expenses | 502,880 | 380,595 | |
| (Loss)/profit and total comprehensive (loss)/income for the period | (109,395,124) | 9,031,130 | |
| Basic and diluted (losses)/earnings per 2017 share | 9 | (0.2388) | 0.0204 |
| Basic and diluted losses per 2014 share* | 9 | N/A | (0.0091) |
*2014 shares were redeemed in full on 1 April 2019.
All items in the above statement are derived from continuing operations.
For the six month period ended 30 June 2020
| Note | Share capital (2017 Shares) (unaudited) US\$ |
Retained earnings (2017 Shares) (unaudited) US\$ |
Total equity (unaudited) US\$ |
|
|---|---|---|---|---|
| At 1 January 2020 | 439,400,944 | (96,242,034) | 343,158,910 | |
| Total comprehensive income: Loss for the period |
– | (109,395,124) | (109,395,124) | |
| Total comprehensive loss for the period | – | (109,395,124) | (109,395,124) | |
| Transactions with Shareholders: Issue of 2017 Shares during the period, net of issue costs Dividends declared during the period |
8 4 |
5,521,130 – |
– (9,450,854) |
5,521,130 (9,450,854) |
| Total transactions with Shareholders | 5,521,130 | (9,450,854) | (3,929,724) | |
| At 30 June 2020 | 444,922,074 | (215,088,012) | 229,834,062 | |
| Note | Share capital (2017 Shares) (unaudited) US\$ |
Share capital (2014 Shares) (unaudited) US\$ |
Retained earnings (2017 Shares) (unaudited) US\$ |
Retained earnings (2014 Shares) (unaudited) US\$ |
Total equity (unaudited) US\$ |
|---|---|---|---|---|---|
| At 1 January 2019 | 439,888,273 | 22,716,434 | (43,577,478) | (3,408,180) | 415,619,049 |
| Total comprehensive income: Profit for the period |
– | – | 9,230,890 | (199,760) | 9,031,130 |
| Total comprehensive income for the period |
– | – | 9,230,890 | (199,760) | 9,031,130 |
| Transactions with Shareholders: 2014 share redemptions paid during 8 the period |
– | (17,866,496) | – | – | (17,866,496) |
| Transfer of reserves on closure of 2014 share class |
– | (4,849,938) | – | 4,849,938 | – |
| Dividends declared during the period 4 |
– | – | (31,539,888) | (1,241,998) | (32,781,886) |
| Total transactions with Shareholders | – | (22,716,434) | (31,539,888) | 3,607,940 | (50,648,382) |
| At 30 June 2019 | 439,888,273 | – | (65,886,476) | – | 374,001,797 |
At 30 June 2020
| 30 June 2020 (unaudited) |
31 December 2019 (audited) |
||
|---|---|---|---|
| Note | US\$ | US\$ | |
| Assets | |||
| Cash and cash equivalents | 1,445,780 | 5,340,650 | |
| Prepayments | 58,368 | 17,899 | |
| Distribution receivable | – | 1,168,089 | |
| Financial assets at fair value through profit or loss | 5 | 228,444,427 | 336,721,957 |
| Total assets | 229,948,575 | 343,248,595 | |
| Liabilities | |||
| Trade and other payables | 114,513 | 89,685 | |
| Total liabilities | 114,513 | 89,685 | |
| Net assets | 229,834,062 | 343,158,910 | |
| Equity | |||
| Retained earnings | (215,088,012) | (96,242,034) | |
| Share capital | 8 | 444,922,074 | 439,400,944 |
| Total equity | 229,834,062 | 343,158,910 | |
| Total Net Assets attributable to 2017 Shareholders | 229,834,062 | 343,158,910 | |
| Number of 2017 Shares | 8 | 467,728,360 | 452,698,737 |
| Net asset value per 2017 Share | 0.4914 | 0.7580 |
The Unaudited Condensed Financial Statements on pages 14 to 35 were approved and authorised for issue by the Board of Directors on 9 September 2020 and signed on its behalf by:
For the six month period ended 30 June 2020
| 1 January 2020 to 30 June 2020 (unaudited) |
1 January 2019 to 30 June 2019 (unaudited) |
||
|---|---|---|---|
| Note | US\$ | US\$ | |
| Cash flows from operating activities | |||
| (Loss)/profit for the period | (109,395,124) | 9,031,130 | |
| Adjustments for: | |||
| Net losses/(gains) on financial assets at fair value through profit or loss | 5 | 108,842,611 | (9,234,045) |
| Net foreign exchange losses/(gains) | 52,848 | (32,987) | |
| (499,665) | (235,902) | ||
| (Increase)/decrease in prepayments | (40,469) | 17,012 | |
| Increase/(decrease) in trade and other payables | 24,828 | (11,779) | |
| Income distributions received from Master Fund | – | 1,147,242 | |
| Income distributions received from Master Fund II | 5,807,635 | 23,107,765 | |
| Purchases into Master Fund II during the period | 5 | (40,204,500) | (5,350,000) |
| Net cash flow (used in)/from operating activities | (34,912,171) | 18,674,338 | |
| Cash flows from investing activities | |||
| Sale of investment during the period | 5 | 34,999,873 | – |
| Net cash flow from investing activities | 34,999,873 | – | |
| Cash flows from financing activities | |||
| Proceeds from 2017 share issuance, net of costs | 8 | 5,521,130 | – |
| Dividends paid during the period | 4 | (9,450,854) | (32,781,886) |
| Net cash flow used in financing activities | (3,929,724) | (32,781,886) | |
| Net decrease in cash and cash equivalents | (3,842,022) | (14,107,548) | |
| Cash and cash equivalents at beginning of period | 5,340,650 | 16,552,741 | |
| Effect of foreign exchange rate changes during the period | (52,848) | 32,987 | |
| Cash and cash equivalents at end of period | 1,445,780 | 2,478,180 |
Fair Oaks Income Limited (the "Company") was incorporated and registered in Guernsey under the Companies (Guernsey) Law, 2008 on 7 March 2014. The Company's registration number is 58123 and it is regulated by the Guernsey Financial Services Commission as a registered closed ended collective investment scheme under The Registered Collective Investment Scheme Rules 2015. The Company is listed and began trading on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE") on 12 June 2014.
The Company makes its investments through FOMC II LP (the "Master Fund II") in which the Company is a limited partner and indirectly through FOIF LP (the "Master Fund") (the "Master Fund" and the "Master Fund II" together the "Master Funds"). The Master Fund II was registered in Guernsey on 24 February 2017 and the Master Fund was registered in Guernsey on 7 May 2014 under The Limited Partnerships (Guernsey) Law, 1995, as amended. During the six month period ended 30 June 2020, the Master Fund II allowed three new limited partners to enter the partnership and at 30 June 2020, the Master Fund II had five limited partners, including Fair Oaks Founder II LP, a related entity. At 30 June 2020, following the admission of the three new limited partners, the Company had a 71.80% holding in the Master Fund II. On 1 April 2019, the Company sold its direct holding of 11.31% in the Master Fund, but indirectly remains invested in the Master Fund through the Master Fund II.
At 30 June 2020, the Company had 467,728,360 2017 Shares ("2017 Shares") (31 December 2019: 452,698,737 2017 Shares). At 31 December 2019, the Company on behalf of the 2017 Shares had a 71.80% (31 December 2019: 100%) holding in the Master Fund II, which in turn had a holding of 66.20% (31 December 2019: 66.20%) in the Master Fund.
The general partner of the Master Fund and Master Fund II is Fair Oaks Income Fund (GP) Limited (the "General Partner" or "GP"). The Master Funds invest in portfolios consisting primarily of Collateral Loan Obligations ("CLOs"). The Company may also invest in Qualifying Short Term Investments if at any time the Company holds any uninvested cash.
These Unaudited Condensed Financial Statements ("Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 'Interim Financial Reporting' as required by DTR 4.2.4R, the Listing Rules of the LSE and applicable legal and regulatory requirements. They do not include all the information and disclosures required in Annual Financial Statements and should be read in conjunction with the Company's last Annual Audited Financial Statements for the year ended 31 December 2019.
The accounting policies applied in these Financial Statements are consistent with those applied in the last Annual Audited Financial Statements for the year ended 31 December 2019, which were prepared in accordance with International Financial Reporting Standards ("IFRS"). Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements.
These Financial Statements were authorised for issue by the Company's Board of Directors on 9 September 2020.
Expenses and non-investment assets and liabilities were apportioned to 2017 Shares and to 2014 Shares based on the assets under management of the respective share class at the date of the transaction and income was based on the share classes' respective ownership of the Master Fund and Master Fund II. Following the final 2014 Share redemption on 1 April 2019, expenses and non-investment assets and liabilities are apportioned 100% to 2017 Shares.
There have been no changes to the significant accounting judgements, estimates and assumptions from those applied in the Company's Audited Annual Financial Statements for the year ended 31 December 2019.
At the date of approval of these Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective:
The Directors expect that the adoption of these amended standards in a future period will not have a material impact on the Financial Statements of the Company.
The Board has considered the requirements of IFRS 8 – "Operating Segments". The Company has entered into an Investment Advisory Agreement with the Investment Adviser under which the Investment Adviser is responsible for the management of the Company's investment portfolio, subject to the overall supervision of the Board of Directors. Subject to its terms and conditions, the Investment Advisory Agreement requires the Investment Adviser to manage the Company's investment portfolio in accordance with the Company's investment guidelines as in effect from time to time, including the authority to purchase and sell securities and other investments and to carry out other actions as appropriate to give effect thereto. However, the Board retains full responsibility to ensure that the Investment Adviser adheres to its mandate. Moreover, the Board is fully responsible for the appointment and/or removal of the Investment Adviser. Accordingly, the Board is deemed to be the "Chief Operating Decision Maker" of the Company.
In the Board of Directors' opinion, the Company is engaged in a single segment of business, being investments into the Master Fund and Master Fund II, which are Guernsey registered limited partnerships.
Segment information is measured on the same basis as that used in the preparation of the Company's Financial Statements.
The Company receives no revenues from external customers, nor holds any non-current assets, in any geographical area other than Guernsey.
The Company's policy is to declare dividends to shareholders representing an amount in aggregate at least equal to the gross income from investments received by the Company in the relevant financial period attributable to the Company's investment in the Master Fund II and Qualifying Short Term Investments, less expenses of the Company.
Prior to March 2020, the Company declared monthly dividends of 0.7 US cents per 2017 Share (previously 2014 Share also) and a twelfth interim dividend such that, in the opinion of the Board of Directors, substantially all net income generated by the Company in 2019 will be distributed to shareholders.
On 30 March 2020, the Company announced that in light of ongoing uncertainty in economies and markets caused by the COVID-19 pandemic, the Board resolved to suspend the declaration of dividend payments.
On 20 July 2020, in light of the continued performance and the increased resilience of Master Fund II's investments, the Board decided to resume the payment of dividends, on a quarterly basis and at a variable rate. The Company announced the first quarterly dividend at the end of July in an amount of 1.5 cents per share.
The Company declared the following dividends per 2017 Share during the six month period ended 30 June 2020:
| Dividend rate per 2017 Share |
Net dividend payable |
||||
|---|---|---|---|---|---|
| Period to | Payment date | (cents) | (US\$) | Record date | Ex-dividend date |
| 31 December 2019 | 30 January 2020 | 0.7 | 3,172,231 | 17 January 2020 | 16 January 2020 |
| 31 January 2020 | 27 February 2020 | 0.7 | 3,160,025 | 14 February 2020 | 13 February 2020 |
| 28 February 2020 | 26 March 2020 | 0.7 | 3,118,598 | 13 March 2020 | 12 March 2020 |
| 2.10 | 9,450,854 |
The Company declared the following dividends per 2017 Share during the six month period ended 30 June 2019:
| Period to | Payment date | Dividend rate per 2017 Share (cents) |
Net dividend payable (US\$) |
Record date | Ex-dividend date |
|---|---|---|---|---|---|
| 31 December 2018 | 31 January 2019 | 3.45 | 15,670,072 | 18 January 2019 | 17 January 2019 |
| 31 January 2019 | 28 February 2019 | 0.7 | 3,176,698 | 15 February 2019 | 14 February 2019 |
| 28 February 2019 | 28 March 2019 | 0.7 | 3,171,938 | 15 March 2019 | 14 March 2019 |
| 31 March 2019 | 25 April 2019 | 0.7 | 3,171,347 | 12 April 2019 | 11 April 2019 |
| 30 April 2019 | 23 May 2019 | 0.7 | 3,161,918 | 10 May 2019 | 9 May 2019 |
| 31 May 2019 | 27 June 2019 | 0.7 | 3,187,915 | 14 June 2019 | 13 June 2019 |
| 6.95 | 31,539,888 |
The Company declared the following dividends per 2014 Share during the six month period ended 30 June 2019:
| Dividend rate per 2014 Share* |
Net dividend payable |
||||
|---|---|---|---|---|---|
| Period to | Payment date | (cents) | (US\$) | Record date | Ex-dividend date |
| 31 December 2018 | 31 January 2019 | 4.26 | 934,793 | 18 January 2019 | 17 January 2019 |
| 31 January 2019 | 28 February 2019 | 0.7 | 153,612 | 15 February 2019 | 14 February 2019 |
| 28 February 2019 | 28 March 2019 | 0.7 | 153,593 | 15 March 2019 | 14 March 2019 |
| 5.66 | 1,241,998 |
*2014 Shares fully redeemed on 1 April 2019.
The default currency payment for dividends is US Dollars. However, shareholders can elect to receive their dividends in British Pounds Sterling ("Sterling") by registering under the Company's Dividend Currency Election.
The rate per 2017 Share (prior to 1 April 2019: 2014 Share also) to be used to pay shareholders who elected to receive their dividend in Sterling will be announced on the London Stock Exchange each month prior to the payment date.
Under Guernsey law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts when they fall due, and whether the value of a company's assets is greater than its liabilities. The Company passed the solvency test for each dividend paid.
Total dividends payable as at 30 June 2020 were US\$nil (31 December 2019: US\$nil).
| 1 January 2020 to 30 June 2020 (unaudited) 2017 Shares US\$ |
|
|---|---|
| Cost of financial assets at fair value through profit or loss at the start of the period | 426,885,179 |
| Purchases of investments at cost during the period | 40,204,500 |
| Sale of investment during the period | (34,999,873) |
| Realised loss on sale of investment during the period | (3,064,276) |
| Cost of financial assets at fair value through profit or loss at the end of the period | 429,025,530 |
| Net unrealised losses on financial assets at the end of the period | (200,581,103) |
| Financial assets at fair value through profit or loss at the end of the period | 228,444,427 |
| Realised loss on sale of investment during the period | (3,064,276) |
| Movement in net unrealised losses during the period | (110,417,881) |
| Income distributions declared from Master Fund II during the period | 4,639,546 |
| Net losses on financial assets at fair value through profit or loss | (108,842,611) |
(continued)
| 1 January 2019 to 31 December 2019 (audited) | ||||
|---|---|---|---|---|
| 2014 Shares US\$ |
2017 Shares US\$ |
Total Company US\$ |
||
| Cost of financial assets at fair value through profit or loss at the start of the year |
22,491,051 | 425,164,125 | 447,655,176 | |
| Purchase of investments in Master Fund II at cost during the year |
– | 9,782,000 | 9,782,000 | |
| Purchase of investment at cost during the year | – | 38,064,150 | 38,064,150 | |
| Capital distribution received from Master Fund II | – | (46,125,096) | (46,125,096) | |
| Sale of investment in the Master Fund during the year* |
(17,536,442) | – | (17,536,442) | |
| Realised loss on sale of investment during the year | (4,954,609) | – | (4,954,609) | |
| Cost of financial assets at fair value through profit or loss at the end of the year |
– | 426,885,179 | 426,885,179 | |
| Net unrealised losses on financial assets at the end of the year |
– | (90,163,222) | (90,163,222) | |
| Financial assets at fair value through profit or loss | ||||
| at the end of the year | – | 336,721,957 | 336,721,957 | |
| Realised loss on sale of investment in the Master Fund | (4,954,609) | – | (4,954,609) | |
| Movement in net unrealised loss during the year | 4,333,950 | (32,004,352) | (27,670,402) | |
| Income distributions declared from the Master Fund during the year |
454,996 | – | 454,996 | |
| Income distributions declared from Master Fund II during the year |
– | 30,510,995 | 30,510,995 | |
| Net losses on financial assets at fair value through | ||||
| profit or loss | (165,663) | (1,493,357) | (1,659,020) |
*Sale of investment in the Master Fund was a non-cash transactions for the Company which, in accordance with the 2014 Final Redemption, was completed via a cash payment funded by the Master Fund II directly to the 2014 Shareholders and non-cash in specie distributions of 2014 Shareholders pro rata exposure to the Company's interest in the Master Fund.
| 1 January 2019 to 30 June 2019 (unaudited) | ||||
|---|---|---|---|---|
| 2014 Shares US\$ |
2017 Shares US\$ |
Total Company US\$ |
||
| Cost of financial assets at fair value through profit or loss at the start of the period |
22,491,051 | 425,164,125 | 447,655,176 | |
| Purchases of investments at cost during the period | – | 5,350,000 | 5,350,000 | |
| Sale of investment in the Master Fund during the period* |
(17,536,442) | – | (17,536,442) | |
| Realised loss on sale of investment during the period | (4,954,609) | – | (4,954,609) | |
| Cost of financial assets at fair value through profit or loss at the end of the period |
– | 430,514,125 | 430,514,125 | |
| Net unrealised losses on financial assets at the end of the period |
– | (61,432,282) | (61,432,282) | |
| Financial assets at fair value through profit or loss | ||||
| at the end of the period | – | 369,081,843 | 369,081,843 | |
| Realised loss on sale of investment during the period | (4,954,609) | – | (4,954,609) | |
| Movement in net unrealised gains/(losses) during the period |
4,333,950 | (3,273,412) | 1,060,538 | |
| Income distributions declared from the Master Fund during the period |
454,996 | – | 454,996 | |
| Income distributions declared from Master Fund II during the period |
– | 12,673,120 | 12,673,120 | |
| Net (losses)/gains on financial assets at fair value | ||||
| through profit or loss | (165,663) | 9,399,708 | 9,234,045 |
*Sale of investment in the Master Fund was a non-cash transactions for the Company which, in accordance with the 2014 Final Redemption, was completed via a cash payment funded by the Master Fund II directly to the 2014 Shareholders and non-cash in specie distributions of 2014 Shareholders pro rata exposure to the Company's interest in the Master Fund.
At 30 June 2020, the Company's 2017 Shareholders were 100% invested into Master Fund II. During the six month period ended 30 June 2020, the Master Fund II allowed three new limited partners to enter the partnership and at 30 June 2020, the Master Fund II had five limited partners, including Fair Oaks Founder II LP, a related entity. At 30 June 2020, following the admission of the three new limited partners, the Company had a 71.80% holding in the Master Fund II.
On 1 April 2019, the Master Fund II increased its limited partner interest in the Master Fund by 3.38%, through the partial acquisition of the 2014 Shares direct holding in the Master Fund in exchange for a cash settlement to the 2014 Shareholders. At 30 June 2020, the Master Fund II had a 66.20% holding in the Master Fund (31 December 2019: 66.20%). Prior to the 1 April 2019, the Company's 2014 Shareholders had a 11.31% holding in the Master Fund.
The following tables reconcile the Company's proportionate share of the Master Fund II's financial assets at fair value through profit or loss to the Company's financial assets at fair value through profit or loss:
| 30 June 2020 (unaudited) Master Fund II |
|
|---|---|
| US\$ | |
| Financial assets at fair value through profit or loss | 229,407,456 |
| Add: Other net current liability | (963,029) |
| Total financial assets at fair value through profit or loss | 228,444,427 |
| 31 December 2019 | |
| (audited) | |
| Master Fund II US\$ |
|
| Financial assets at fair value through profit or loss | 285,420,752 |
| Less: Net current assets | 13,177,705 |
Total financial assets at fair value through profit or loss 298,598,457
The Company's proportionate share of the unrealised losses on investments in the period/year comprises the following movements within the underlying investments:
| 1 January 2020 to 30 June 2020 (unaudited) |
|
|---|---|
| Master Fund II | |
| US\$ | |
| Net unrealised losses on investments at the beginning of the period | (90,222,573) |
| Investment income | 23,537,116 |
| Unrealised losses on financial assets at fair value through profit or loss | (115,138,377) |
| Realised gains on financial assets at fair value through profit or loss | (11,631,086) |
| Net gains on derivative financial instruments and foreign exchange | (1,494,583) |
| Other income | 223,134 |
| Expenses | (1,215,188) |
| Income distributions declared during the period | (4,639,546) |
| Net unrealised losses on investments at the end of the period | (200,581,103) |
| 1 January 2019 to 31 December 2019 (audited) | ||||
|---|---|---|---|---|
| Master Fund* US\$ |
Master Fund II US\$ |
Total Company US\$ |
||
| Net unrealised losses on investments at the beginning of the year |
(4,333,950) | (58,158,870) | (62,492,820) | |
| Investment income | 969,559 | 26,532,789 | 27,502,348 | |
| Income distributions received from Master Fund | – | 4,585,652 | 4,585,652 | |
| Income distributions received from Cycad | – | 1,629,268 | 1,629,268 | |
| Unrealised losses on financial assets at fair value through profit or loss |
(1,150,240) | (31,239,221) | (32,389,461) | |
| Realised losses on financial assets at fair value through profit or loss Net losses on derivative financial instruments |
– | (1,697,606) | (1,697,606) | |
| and foreign exchange | 5,923 | 1,232,003 | 1,237,926 | |
| Other income | – | 487,857 | 487,857 | |
| Expenses | 9,095 | (3,083,450) | (3,074,355) | |
| Income distributions declared during the year | (454,996) | (30,510,995) | (30,965,991) | |
| Movement in unrealised on sale of the Master Fund | 4,954,609 | – | 4,954,609 | |
| Net unrealised losses on investments at the | ||||
| end of the year | – | (90,222,573) | (90,222,573) |
*Shows the Company's proportionate direct share in the Master Fund at 11.31% through 2014 Shares investment only. From 1 April 2019, the Company no longer retained a direct investment in the Master Fund in respect of 2014 Shares.
IFRS 13 requires that a fair value hierarchy be established that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 13 are set as follows:
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement. Observable data is considered to be that market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table analyses within the fair value hierarchy the Company's financial assets (by class, excluding cash and cash equivalents, prepayments, distribution receivable, dividends payable and other payables) measured at fair value:
| Level 1 US\$ |
Level 2 US\$ |
30 June 2020 (unaudited) Level 3 US\$ |
Total US\$ |
|
|---|---|---|---|---|
| Assets: | ||||
| Financial assets at fair value through profit or loss | – | – | 228,444,427 | 228,444,427 |
| Total | – | – | 228,444,427 | 228,444,427 |
| 31 December 2019 (audited) | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| Assets: | US\$ | US\$ | US\$ | US\$ |
| Financial assets at fair value through profit or loss | – | 38,123,500 | 298,598,457 | 336,721,957 |
The investment in the Master Fund II, which is fair valued at each reporting date, has been classified within Level 3 as it is not traded and contains unobservable inputs.
At 31 December 2019, the Company's UCITS investment publishes daily prices which are derived by underlying administrators of the entity on a net asset value basis. The Directors value this UCITS investment at its net asset value at the relevant valuation date, as determined in accordance with the terms of the UCITS investment and as notified to the Company by the underlying administrator. The Directors determined that the net asset value best represents fair value and have classified the UCITS investment as a level 2 investment. During the six month period ended 30 June 2020, the UCITS investment was sold.
The following table presents the movement in Level 3 instruments:
| 1 January 2020 to 30 June 2020 |
1 January 2019 to 31 December 2019 |
|
|---|---|---|
| (unaudited) US\$ |
(audited) US\$ |
|
| Opening Balance | 298,598,457 | 385,162,356 |
| Purchases | 40,204,500 | 9,782,000 |
| Sale of investment in the Master Fund during the year | – | (17,536,442) |
| Movement in net unrealised gain/(loss) during the period/year | (110,358,530) | (27,729,752) |
| Realised loss on sale during the period/year | – | (4,954,609) |
| Capital distributions received from Master Fund II | – | (46,125,096) |
| Closing Balance | 228,444,427 | 298,598,457 |
There have been no transfers between levels during the period ended 30 June 2020 or for the year ended 31 December 2019. Transfers between levels of the fair value hierarchy are recognised as at the end of the reporting period during which the change has occurred.
On a look-through basis, the following table analyses within the fair value hierarchy the Company's proportionate share of the Master Fund II's financial assets and derivatives (by class, excluding cash and cash equivalents, other receivables and prepayments, distribution payable, carried interest payable and trade and other payables) measured at fair value:
| 30 June 2020 (unaudited) | ||||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | |
| Master Fund II* | US\$ | US\$ | US\$ | US\$ |
| Financial assets at fair value through profit or loss | – | 86,817,423 | 142,590,033 | 229,407,456 |
| Derivatives at fair value through profit or loss | – | (1,838,110) | - | (1,838,110) |
| Total | – | 84,979,313 | 142,590,033 | 227,569,346 |
*Shows the Company's proportionate share in the Master Fund II at 71.80% at 30 June 2020.
| 31 December 2019 (audited) | ||||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | |
| Master Fund II** | US\$ | US\$ | US\$ | US\$ |
| Financial assets at fair value through profit or loss | – | 5,033,751 | 280,387,001 | 285,420,752 |
| Derivatives at fair value through profit or loss | – | (412,504) | – | (412,504) |
| Total | – | 4,621,247 | 280,387,001 | 285,008,248 |
**Shows the Company's proportionate share in the Master Fund II at 100.00% at 31 December 2019
The following table summarises the valuation methodologies used for the Company's investments categorised in Level 3 as at 30 June 2020 (unaudited):
| Security | Fair Value US\$ |
Valuation methodology |
Unobservable inputs |
Ranges |
|---|---|---|---|---|
| Master Fund II | 228,444,427 | NAV | Zero % discount | N/A |
| 228,444,427 |
The following table summarises the valuation methodologies used for the Company's investments categorised in Level 3 as at 31 December 2019 (audited):
| Security | Fair Value US\$ |
Valuation methodology |
Unobservable inputs |
Ranges |
|---|---|---|---|---|
| Master Fund II | 298,598,457 | NAV | Zero % discount | N/A |
| 298,598,457 |
The Master Fund II have engaged an independent third party to provide valuations for its CLO investments. The following table summarises, in the Company's opinion, the valuation methodologies used by the independent third party to value the Master Fund II's investments categorised in Level 3 as at 30 June 2020 (unaudited):
| Asset Class Master Fund II* CLO Income Notes |
Fair Value US\$ |
Unobservable inputs |
Ranges | Average | Sensitivity to changes in significant unobservable inputs |
|---|---|---|---|---|---|
| United States of America |
100,453,540 | Prices provided by a third party agent |
US\$0.2900 - US\$0.8903 |
US\$0.4603 | 10% increase/decrease will have a fair value impact of +/- US\$10,045,354 |
| Europe | 31,873,446 | Prices provided by a third party agent |
€0.2700 - €0.9742 |
€0.7319 | 10% increase/decrease will have a fair value impact of +/- US\$3,187,345 |
| CLO Sub Fee Notes Europe |
1,351,771 | Prices provided by a third party agent |
€0.2700 - €0.9742 |
€0.7319 | 10% increase/decrease will have a fair value impact of +/- US\$135,177 |
| Limited Partnerships Master Fund |
3,619,643 | Zero % discount | N/A | N/A | 10% increase/decrease will have a fair value impact of +/- US\$361,964 |
| Cycad | 5,291,633 142,590,033 |
Zero % discount | N/A | N/A | 10% increase/decrease will have a fair value impact of +/- US\$529,163 |
*Shows the Company's proportionate share in the Master Fund II at 71.80% at 30 June 2020.
The Master Fund II has engaged an independent third party to provide valuations for their CLO investments. The following table summarises, in the Company's opinion, the valuation methodologies used by the independent third party to value the Master Fund II's investments categorised in Level 3 as at 31 December 2019 (audited):
| Asset Class Master Fund II** CLO Income Notes |
Fair Value US\$ |
Unobservable inputs |
Ranges | Average | Sensitivity to changes in significant unobservable inputs |
|
|---|---|---|---|---|---|---|
| United States of America |
180,920,825 | Prices provided by a third party agent |
US\$0.4800 - US\$0.7000 |
US\$0.6466 | 10% increase/decrease will have a fair value impact of +/- US\$18,092,083 |
|
| Europe | 42,739,623 | Prices provided by a third party agent |
€0.0001 - €1.4500 |
€0.9600 | 10% increase/decrease will have a fair value impact of +/- US\$4,273,962 |
|
| Limited Partnerships Master Fund |
44,045,876 | Zero % discount | N/A | N/A | 10% increase/decrease will have a fair value impact of +/- US\$4,404,588 |
|
| Cycad | 12,680,677 | Zero % discount | N/A | N/A | 10% increase/decrease will have a fair value impact of +/- US\$1,268,068 |
|
| 280,387,001 |
**Shows the Company's proportionate share in the Master Fund II at 100.00% at 31 December 2019.
Fair Oaks Capital Limited (the "Investment Adviser") is entitled to receive an investment advisory fee from the Company of 1% per annum of the NAV of the Company, in accordance with the Amended and Restated Investment Advisory Agreement dated 9 March 2017 (the "Investment Advisory Agreement"). The investment advisory fee is calculated and payable on the last business day of each month or on the date of termination of the Investment Advisory agreement. The base investment advisory fee will be reduced to take into account any fees received by the Investment Adviser incurred by the Company in respect of its investments in the Master Fund and Master Fund II (taking into account any rebates of such management fees to the Company) in respect of the same relevant period.
The net investment advisory fee during the period is as follows:
| For the six month period ended 30 June 2020 (unaudited) US\$ |
For the six month period ended 30 June 2019 (unaudited) US\$ |
|
|---|---|---|
| Company investment advisory fee | 1,051,823 | 1,726,711 |
| Less: Master fund II rebate | (915,276) | (1,211,595) |
| Less: Master fund rebate | (43,461) | (505,815) |
| Net investment advisory fee | 93,086 | 9,301 |
In circumstances where, as at the date the Net Asset Value per share of the 2017 Shares with respect to the last calendar month of a calendar quarter (the "Quarter End 2017 NAV") is published, the price of the 2017 Shares, adjusted for any dividends declared if required, traded at close in the secondary market below their then-prevailing Quarter End 2017 NAV, the Investment Adviser agrees to reinvest and/or procure the reinvestment by an associate of it of (a) 25% of the fee which it received with respect to that quarter from the Company pursuant to the Investment Advisory Agreement which is attributable to the Net Asset Value of the 2017 Shares and (b) 25% of Master Fund II Priority Profit Share which the General Partner received with respect to that quarter from the Master Fund and Master Fund II which is attributable to the Net Asset Value of the 2017 Shares by, in each case, using its best endeavours to purchase or procure the purchase of 2017 Shares in the Company in the secondary market. The obligation to purchase or procure the purchase of such 2017 Shares shall be fulfilled by the Investment Adviser by no later than one month after the end of such calendar quarter. The Investment Adviser will have no obligation to reinvest and/or procure the reinvestment of fees it receives with respect to a calendar quarter in circumstances where: (i) the 2017 Shares did not trade at close in the secondary market at a discount to their then-prevailing Quarter End 2017 NAV; or (ii) where the 2017 Shares did trade at close in the secondary market at a discount to their thenprevailing Quarter End 2017 NAV and it is unable to purchase or procure the purchase of 2017 Shares in the secondary market at a discount to their then-prevailing Quarter End 2017 NAV despite having used its best endeavours to do so; or (iii) Master Fund II commitment period has already expired, and, in each case, the Investment Adviser shall retain all fees it receives for such quarter. On 22 January 2020, the General Partner purchased 271,851 2017 Shares in the secondary market by way of reinvesting 25% of the quarter's investment advisory fees. On 24 July 2019 and 23 October 2019, the General Partner purchased 285,355 and 289,969 2017 Shares respectively in the secondary market by way of reinvesting 25% of the quarter's investment advisory fees.
The Investment Advisory Agreement can be terminated by either party giving not less than 6 months written notice.
At 30 June 2020, Master Fund II had investments in Fair Oaks Loan Funding I and Fair Oaks Loan Funding II (the "Fair Oaks CLOs") valued at €8,198,822 and €37,064,997 respectively. The Investment Adviser to the Company also has an investment in Fair Oaks Loan Funding I and acts as collateral manager to the Fair Oaks CLOs. In addition, Master Fund II acts as the risk retention holder for the Fair Oaks CLOs. As risk retention holder, Master Fund II is required to retain, on an ongoing basis, a material net economic interest in the Fair Oaks CLOs of not less than 5%.
In addition, during the final quarter of 2019, the Company's uninvested cash was invested, in accordance with the Company's investment policy, into a zero-fee USD share class of Fair Oaks High Grade Credit Fund, an open-ended UCITS fund for which the Investment Adviser to the Company acts as investment manager. During the six month period ended 30 June 2020, this UCITS investment was sold.
For the six month period ended 30 June 2020
The Master Fund and Master Fund II also pay the Founder Partner and Founder Partner II a carried interest equal to 15 per cent of cash available to be distributed (after payment of expenses and management fees) after Limited Partners have received a Preferred Return. The threshold calculation of the Preferred Return will be based solely on distributions and not on NAV calculations so the Master Fund and Master Fund II will not pay any carried interest until their investors have realised the amounts drawn down for investments and met their Preferred Returns. On 1 April 2019, the Company sold its direct holding of 11.31% in the Master Fund, but indirectly remains invested in the Master Fund through the Master Fund II. At 30 June 2020, US\$1,346,062 (31 December 2019: US\$14,522,140) carried interest was accrued at the Master Fund level, to be apportioned to and payable by all limited partners. At 30 June 2020, US\$3,404,181 (31 December 2019: US\$nil) carried interest was accrued at Master Fund II level. None of the carried interest accrued at Master Fund II level was related to the Company's investment in the Master Fund II.
Praxis Fund Services Limited (the "Administrator") is entitled to receive a time-based fee quarterly in arrears for all Company Secretarial services. The Administrator is also entitled to an annual fee of US\$33,128 (31 December 2019: US\$32,320), payable quarterly in arrears for Administration and Accounting services.
The Administrator is also entitled to an additional fee for assisting with reporting under Article 24 of the AIFM Directive. The fee was increased to £2,768 (31 December 2019: £2,700) per return, per jurisdiction, with effect from 1 May 2019.
The Administrator is also entitled to an annual fee of £500 in relation to FATCA reporting and acting as Responsible Officer.
BNP Paribas Securities Services S.C.A., Guernsey Branch (the "Custodian") waived all fees on the basis that all assets are invested into the Master Fund and Master Fund II.
The Company's Board of Directors are entitled to a fee in remuneration for their services as Directors at a rate payable of £43,000 each per annum (31 December 2019: £43,000).
The overall charge for the above-mentioned fees for the Company and the amounts due are as follows:
| For the six month period ended 30 June 2020 (unaudited) US\$ |
For the six month period ended 30 June 2019 (unaudited) US\$ |
|
|---|---|---|
| CHARGE FOR THE YEAR | ||
| Investment adviser fee | 93,086 | 9,301 |
| Administration fee | 76,053 | 73,030 |
| Directors' fees and expenses | 81,449 | 82,853 |
| 30 June 2020 (unaudited) US\$ |
31 December 2019 (audited) US\$ |
|
|---|---|---|
| OUTSTANDING FEES | ||
| Investment adviser fee | 730 | 32,516 |
| Administration fee | 16,146 | 5,401 |
The shareholdings of the Directors' in the Company were as follows:
| 30 June 2020 (unaudited) | 31 December 2019 (audited) | |||
|---|---|---|---|---|
| No. of 2017 | No. of 2017 | |||
| Name | Shares | Percentage | Shares | Percentage |
| Claudio Albanese (Chairman) | 9,697 | 0.00% | 9,697 | 0.00% |
| Jon Bridel | 9,697 | 0.00% | 9,697 | 0.00% |
| Nigel Ward | 60,000 | 0.01% | 60,000 | 0.01% |
As at 30 June 2020, the Investment Adviser, the General Partner and principals of the Investment Adviser and General Partner held an aggregate of 2,825,789 2017 Shares (31 December 2019: 2,566,438 2017 Shares), which is 0.60% (31 December 2019: 0.57%) of the issued 2017 share capital.
The Company is exempt from Guernsey income tax and is charged an annual exemption fee of £1,200 under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
On 13 March 2019, the Company announced a final compulsory redemption of all 2014 Shares at a price equal to the NAV per 2014 Share as at 28 February 2019 less the dividend to be declared for the month ended 28 February 2019 (the "Redemption Price").
The consideration for the redemption was, as default, a US Dollar cash payment. This cash payment was funded by the Master Fund II acquiring at NAV the residual interest in the Master Fund owned by the Company in respect of 2014 Share class. There was also an option to receive an in specie distribution of a 2014 Shareholder's pro rata exposure to the Company's interest in the Master Fund. All holdings of 2014 Shares on the register at the close of business on the record date, being 1 April 2019, were redeemed.
On 15 March 2019, the Company announced the final Redemption Price per 2014 Share of US\$0.8155 being the NAV per 2014 Share as at 28 February 2019 of US\$0.8225 less the 0.70 US cent dividend declared for that month.
On 3 April 2019, the Company announced with regards to the final redemption of 2014 Shares, as noted above, that the rate per share to be used to pay shareholders who elected to receive their redemption proceeds in sterling will be GBP 0.6191 per share. The proceeds of the redemption were paid through CREST to holders of Shares in uncertificated form, and by cheque to holders of Shares in certificated form on 15 April 2019.
Furthermore, the Company notified that its issued share capital consists of 453,348,737 2017 Shares only, further to the final redemption of 21,942,137 2014 Shares effected on 1 April 2019. None of these 2017 Shares are held in Treasury, therefore, the total number of 2017 Shares with voting rights in the Company is 453,348,737. The 2014 Shares were disabled on CREST and the line of stock cancelled.
During April 2020, the Company announced an issue to satisfy market demand of 15,029,623 new 2017 Shares at an issue price of US\$0.372 per new 2017 Share.
The Company's 2017 Shares (previously 2014 Shares also) is classified as equity. Incremental costs directly attributable to the issue of shares are recognised as a deduction in equity and are charged to the share capital account, including the initial set up costs.
The authorised share capital of the Company is represented by an unlimited number of ordinary shares of nil par value and have the following rights:
| 2017 Shares | ||||
|---|---|---|---|---|
| 30 June 2020 (unaudited) | 31 December 2019 (audited) | |||
| Shares | US\$ | Shares | US\$ | |
| Share capital at the beginning of the period/year | 452,698,737 | 439,400,944 | 453,348,737 | 439,888,273 |
| Own share capital acquired during the period/year |
– | – | (650,000) | (487,329) |
| Share capital issued during the period/year, net of issue costs |
15,029,623 | 5,521,130 | – | – |
| Share capital at the end of the period/year | 467,728,360 | 444,922,074 | 452,698,737 | 439,400,944 |
(continued)
Issued share capital continued 2014 Shares
| 31 December 2019 (audited) | ||
|---|---|---|
| Shares | US\$ | |
| Share capital at the beginning of the year | 21,942,137 | 22,716,434 |
| Share redemptions* | (21,942,137) | (17,866,496)* |
| Transfer of reserves on final 2014 share redemption | – | (4,849,938) |
| Share capital at the end of the year | – | – |
*2014 Share redemption was a non-cash transactions for the Company which, in accordance with the 2014 Final Redemption, was completed via a cash redemption funded by the Master Fund II directly to the 2014 Shareholders and non-cash in specie distributions of 2014 Shareholders pro rata exposure to the Company's interest in the Master Fund.
The total number of 2017 Shares in issue, as at 30 June 2020 was 468,378,360 (31 December 2019: 453,348,737), of which 650,000 (31 December 2019: 650,000) Shares were held in treasury, and the total number of shares in issue excluding treasury shares were 467,728,360 (31 December 2019: 452,698,737). At 30 June 2020, the Company has 467,728,360 (31 December 2019: 452,698,737) total voting rights.
During the year ended 31 December 2019, the Company bought back 650,000 2017 shares, at an average price of £0.7497.
| For the six month period ended 30 June 2020 (unaudited) |
For the six month period ended 30 June 2019 (unaudited) |
|||
|---|---|---|---|---|
| 2017 Shares US\$ |
2014 Shares* US\$ |
2017 Shares US\$ |
||
| Weighted average number of shares | 458,111,561 | 21,942,137 | 453,348,737 | |
| (Loss)/profit for the financial year | (109,395,124) | (199,760) | 9,230,890 | |
| Basic and diluted (losses)/earnings per share | (0.2388) | (0.0091) | 0.0204 |
*for the period from 1 January 2019 to the date 2014 shares were redeemed in full on 1 April 2019.
The weighted average number of shares as at 30 June 2020 and 30 June 2019 is based on the number of 2017 Shares (30 June 2019: 2014 Shares also) in issue during the period under review, as detailed in Note 8.
The Company entered into a Subscription Agreement with Master Fund II and agreed to become a Limited Partner and made a commitment to Master Fund II of US\$434,013,756 (31 December 2019: US\$435,442,012) of which US\$432,982,362 (31 December 2019: US\$392,777,862) had been called.
At 30 June 2020 and 31 December 2019, the Company had no other outstanding commitments.
On 20 July 2020, in light of the continued performance and the increased resilience of Master Fund II's investments, the Board decided to resume the payment of dividends, on a quarterly basis and at a variable rate. The Company expected to announce the first quarterly dividend at the end of July in an amount of approximately 1.5 cents per share.
The Master Funds received distributions on all equity investments in April and, with all investments passing their overcollateralisation tests, distributions are also expected on all investments in July. Furthermore, the opportunistic investments made in the second quarter have resulted in the portfolio consisting of 48% CLO debt by market value. This increases the resilience and predictability of Master Fund II and the Company's cash flow.
On 30 July 2020, the Company declared a interim dividend of 1.5 US cents per 2017 share in respect of the quarter ended 30 June 2020 to the 2017 Shares, which was paid on 20 August 2020. The ex dividend date was 6 August 2020.
There were no other significant events since the year end which would require revision of the figures or disclosures in the Financial Statements.
As at 30 June 2020
| Security | Instrument | Par Value Master Fund II1 |
Valuation |
|---|---|---|---|
| AIMCO 2017-A SUB | Subordinated Notes | US\$19,443,440 | 38.00% |
| ALLEG 2017-2X SUB | Subordinated Notes | US\$28,630,250 | 51.00% |
| ARES 2015-35R | Subordinated Notes | US\$18,668,000 | 49.00% |
| AWPT 2015-4 SFN | Subordinated Fee Notes | US\$9,197,231 | 0.01% |
| AWPT 2017-6X SUB | Subordinated Notes | US\$21,575,900 | 29.00% |
| ELM 2014-1A SUB | Subordinated Notes | US\$4,540,807 | 30.00% |
| FOAKS 1X M | Subordinated Fee Notes | €718,000 | 0.01% |
| FOAKS 1X SUB | Subordinated Notes | €20,104,000 | 27.00% |
| FOAKS 1X Z | Subordinated Fee Notes | €361,104 | 127.00% |
| FOAKS 2X M | Subordinated Fee Notes | €718,000 | 0.01% |
| FOAKS 2X SUB | Subordinated Notes | €33,746,000 | 68.00% |
| FOAKS 2X Z | Subordinated Fee Notes | €615,429 | 121.00% |
| HLM 13X-2018 SUB | Subordinated Notes | US\$18,632,100 | 36.00% |
| MARNR 2015-1A SUB | Subordinated Notes | US\$4,693,868 | 35.00% |
| MARNR 2016-3A SUB | Subordinated Notes | US\$4,428,562 | 41.00% |
| MARNR 2017-4 SUB | Subordinated Notes | US\$20,743,020 | 39.00% |
| POST 2018-1X SUB | Subordinated Notes | US\$28,204,835 | 41.00% |
| SHACK 2018-12 SUB | Subordinated Notes | US\$21,540,000 | 41.00% |
| WELF 2018-1X SUB | Subordinated Notes | US\$20,732,250 | 40.00% |
1 Master fund II holdings include investments held indirectly via Master Fund II's 66.20% interest in the Master Fund and its 14.96% interest in Cycad Investments LP.
As at 30 June 2020
| Security | Instrument | Par Value Master Fund II1 |
Valuation |
|---|---|---|---|
| ACLO 2X ER | Class E Notes | €1,687,300 | 87.84% |
| APID 2018-18A F | Class F Notes | US\$2,872,000 | 68.26% |
| ARESE 10X E | Class E Notes | €2,513,000 | 90.53% |
| ARESE 2013-6X ER | Class E Notes | €8,903,200 | 91.63% |
| ARESE 9X E | Class E Notes | €3,661,800 | 88.34% |
| AVOCA 13X ER | Class E Notes | €1,543,700 | 91.72% |
| BLUME 2017-2X E | Class E Notes | €1,077,000 | 92.19% |
| BOPHO 4X E | Class E Notes | €1,436,000 | 86.36% |
| CADOG 6A ER | Class E Notes | €1,436,000 | 90.58% |
| CEDF 2014-4A ER | Class E Notes | US\$1,436,000 | 89.03% |
| CGMSE 2017-1X E | Class E Notes | €1,436,000 | 73.95% |
| CGMSE 2018-1X D | Class D Notes | €7,180,000 | 82.56% |
| CORDA 10X E | Class E Notes | €1,436,000 | 86.99% |
| CORDA 11X E | Class E Notes | €2,513,000 | 87.88% |
| CORDA 16X E | Class E Notes | €2,513,000 | 94.00% |
| CRNCL 2018-9X E | Class E Notes | €1,436,000 | 90.62% |
| DRSLF 2017-49A F | Class F Notes | US\$3,302,800 | 72.17% |
| DRSLF 2017-53A F | Class F Notes | US\$3,590,000 | 71.14% |
| EGLXY 2018-6X F | Class F Notes | €3,051,500 | 69.90% |
| GLM 2019-5A E | Class E Notes | US\$7,180,000 | 79.23% |
| HARVT 11X FR | Class F Notes | €795,000 | 73.84% |
| HARVT 7X FR | Class F Notes | €1,256,500 | 77.61% |
| HLM 13X-2018 F | Class F Notes | US\$4,119,525 | 58.87% |
| INVSC 3X E | Class E Notes | €4,523,400 | 96.20% |
| JPARK 2016-1A ER | Class E Notes | US\$1,436,000 | 70.01% |
| JUBIL 2015-15X E | Class E Notes | €1,464,720 | 87.56% |
| JUBIL 2016-17X ER | Class E Notes | €2,872,718 | 86.51% |
| JUBIL 2017-19X E | Class E Notes | €6,462,000 | 84.97% |
| MDPK 2016-20A FR | Class F Notes | US\$2,872,000 | 72.78% |
| OCT39 2018-3A E | Class E Notes | US\$2,154,000 | 88.64% |
| OCT39 2018-3A F | Class F Notes | US\$6,462,000 | 68.02% |
| OHECP 2015-4X FR | Class F Notes | €1,823,002 | 72.16% |
| OZLME 2X F | Class F Notes | €4,458,780 | 161.02% |
| OZLME 2X F | Class F Notes | €4,458,780 | 161.02% |
| OZLME 3X E | Class E Notes | €1,436,000 | 85.21% |
| PHNXP 1X DR | Class D Notes | €2,513,000 | 91.61% |
| RPARK 1X ER | Class E Notes | €2,154,000 | 88.36% |
| SNDPE 1A E | Class E Notes | €1,795,000 | 97.24% |
| SNDPE 1X E | Class E Notes | €2,154,000 | 97.24% |
| SNDPE 2X E | Class E Notes | €1,651,400 | 97.42% |
| SPAUL 5X ER | Class E Notes | €1,543,700 | 87.48% |
| SYMP 2018-19A F | Class F Notes | US\$3,949,000 | 69.87% |
| SYMP 2013-12A F | Class F Notes | US\$6,179,018 | 62.43% |
1 Master fund II holdings include investments held indirectly via Master Fund II's 66.20% interest in the Master Fund and its 14.96% interest in Cycad Investments LP.
Claudio Albanese (Independent non-executive Chairman) Jon Bridel (Independent non-executive Director) Nigel Ward (Independent non-executive Director)
Sarnia House Le Truchot St Peter Port Guernsey GY1 1GR
Fair Oaks Capital Limited 1 Albemarle Street London W1S 4HA
Carey Olsen (Guernsey) LLP Carey House Les Banques St Peter Port Guernsey GY1 4BZ
BNP Paribas Securities Services S.C.A. BNP Paribas House St Julian's Avenue St Peter Port Guernsey GY1 1WA
KPMG Channel Islands Limited Glategny Court Glategny Esplanade St Peter Port Guernsey GY1 1WR
Praxis Fund Services Limited Sarnia House Le Truchot St Peter Port Guernsey GY1 1GR
Link Market Services (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH
Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH
Numis Securities Limited 10 Paternoster Square London EC4M 7LT
Total NAV return is a calculation showing how the NAV per share has performed over a period of time, taking into account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on an accumulative basis from inception of the Company, at the prevailing NAV on the last day of the month that the shares first trade ex-dividend. The performance is evaluated on a original shareholding of 1000 shares on inception of the Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between investment funds where the dividend paid may differ.
| For the six month period ended 30 June 2020 |
For the six month period ended 30 June 2019 |
||
|---|---|---|---|
| Opening NAV per 2017 share | US\$0.7580 | US\$0.8742 | |
| Opening accumulated number of 2017 Shares* | (a) | 1,915.3 shares | 1,672.5 shares |
| Opening NAV valuation of shares | (b) | US\$1,451.8 | US\$1,462.1 |
| Dividends paid during the period | US\$0.0210 | US\$0.0695 | |
| Dividends converted to shares** | (c) | 54.1 shares | 142.7 shares |
| Closing NAV per 2017 share | US\$0.4914 | US\$0.8250 | |
| Closing accumulated number of 2017 Shares* (d = a + c) | (d) | 1,969.4 shares | 1,815.2 shares |
| Closing NAV valuation of shares | (e) | US\$967.8 | US\$1,497.5 |
| NAV valuation of shares return (f = e – b) | (f) | (US\$484.0) | US\$35.4 |
| Total NAV return (g = (f / b) x 100) | (g) | (33.3%) | 2.4% |
*with dividends reinvested since inception (12 June 2014)
**converted to 2017 Shares at the prevailing month end NAV ex-dividend for all dividends paid in 2020.
Total share price return is a calculation showing how the share price per share has performed over a period of time, taking into account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on an accumulative basis from inception of the Company, at the prevailing share price on the last day of the month that the shares first trade ex-dividend. The performance is evaluated on a original shareholding of 1000 shares on inception of the Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between investment funds where the dividend paid may differ.
| For the six month period ended 30 June 2020 |
For the six month period ended 30 June 2019 |
||
|---|---|---|---|
| Opening share price per 2017 share | US\$0.6775 | US\$0.7925 | |
| Opening accumulated number of 2017 Shares* | (a) | 1,889.4 shares | 1,642.4 shares |
| Opening share price valuation of shares | (b) | US\$1,280.1 | US\$1,301.6 |
| Dividends paid during the period | US\$0.0210 | US\$0.0695 | |
| Dividends converted to shares** | (c) | 59.5 shares | 144.5 shares |
| Closing share price per 2017 share | US\$0.4500 | US\$0.8325 | |
| Closing accumulated number of 2017 Shares* (d = a + c) | (d) | 1,948.8 shares | 1,786.9 shares |
| Closing share price valuation of shares | (e) | US\$877.0 | US\$1,487.6 |
| Valuation of shares return (f = e – b) | (f) | (US\$403.1) | US\$186.0 |
| Total share price return (g = (f / b) x 100) | (g) | (31.5%) | 14.3% |
*with dividends reinvested since inception (12 June 2014).
**converted to 2017 Shares at the prevailing month end share price ex-dividend for all dividends paid in 2020.
The ongoing charges ratio of an investment company is the annual percentage reduction in shareholder returns as a result of recurring operational expenditure. Ongoing charges are classified as those expenses which are likely to recur in the foreseeable future, and which relate to the operation of the company, excluding investment transaction costs, gains or losses on investments and performance fees. In accordance with the AIC guidance, the proportionate charges for the period are also incorporated from investments in other funds. As such charges from the Master Fund II a weighted average percentage for the period of 71.28% (31 December 2019: 100%), the Master Fund at a weighted average percentage for the period of 47.18% (31 December 2019: 65.36%) and Cycad Investments LP at a weighted average percentage for the period of 10.66% (31 December 2019: 14.96%) are included. Performance fees or carried interest from the underlying funds are not included. The OCR is calculated as the total ongoing charges for a period divided by the average net asset value over that period/year.
| For the six month period ended 30 June 2020 |
For the year ended 31 December 2019 |
|||||
|---|---|---|---|---|---|---|
| Company US\$ |
Master Funds* US\$ |
Total US\$ |
Company US\$ |
Master Funds* US\$ |
Total US\$ |
|
| Total expenses | 502,880 | 3,559,719 | 4,062,599 | 805,444 | 4,213,653 | 5,019,097 |
| Non-recurring expenses | – | (2,426,372) | (2,426,372) | (5,103) | (193,502) | (198,605) |
| Total ongoing expenses | 502,880 | 1,133,347 | 1,636,227 | 800,341 | 4,020,151 | 4,820,492 |
| Annualised total ongoing expenses |
1,011,286 | 2,991,581 | 800,341 | 4,020,151 | 4,820,492 | |
| Average NAV | 247,376,286 | 247,376,502 | 366,775,594 | 366,775,594 | ||
| Ongoing charges ratio (using AIC methodology) |
0.41% | 1.21% | 0.22% | 1.31% |
*"Master Funds" includes FOMC II LP, FOIF LP and Cycad Investments LP.
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