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08/11/2011 | 04:40 am
BOUSSARD GAVAUDAN : BGHL July 2011 Monthly statementBOUSSARD & GAVAUDAN HOLDING LIMITED a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registration number 45582 JULY 2011 STATEMENT
A. BG FUND PLC Note that trade examples detailed in each strategy below are among the best and worst performances of the month. COMMENTARY AND HIGHLIGHTS European equity markets were stressed in July and the Eurostoxx 50® dropped by 6.2%. Volatilities on stock markets increased: the VDAX index moved up to 20% from 16.5% and the VSTOXX® index to 27.6% from 21.6%. Credit spreads widened with the iTraxx Crossover index at 438bps (+42bps of widening). Volatility strategies Convertible bond arbitrage * The total value of the investments of BGHL is based on the final NAV for the euro and sterling shares and the currency exchange rate for the Sterling vs. Euro. 1 Convertible bonds (excl. mandatories) were down this month, contributing negatively to the performance of BG Fund. Fortis CASHES, which were the main contributor to this performance, were again lower in July reaching a low mid 54.0% at month-end (-4 points vs. June end). We even saw a lower print in a light volume at 52%! Whilst there was no specific news on the situation, the bonds were negatively impacted by the persistent stress and uncertainties surrounding peripheral sovereign countries. By comparison, the European bank tier one market decreased on average by 2.5% over the month. The European CB market was softer across the board this month and had limited volume. In this context, the rest of our CB portfolio ended almost flat thanks not only to our preemptive investment decision to reduce our exposure a few months ago, but also to the gamma we realised over the period on high delta names.” There was no issuance in the European CB market this month. Mandatory convertible bond arbitrage Mandatory convertible bonds returned positively this month. Most of the positions were flat but we benefited from a better valuation on the UBS/BBVA exchangeable bonds which were lifted up in light volume. There was no new mandatory convertible bond issue in Europe this month. Gamma trading July was a difficult month for equities, as the market basically drifted downwards on most days, with the exception of the week the European leaders agreed to draft a plan to solve the Greek financial situation and to stop the contagion. We have continued to maintain our long gamma exposure, in spite of the high aversion to risk reflected in the high implied volatilities. The market has not been convinced by the efforts of the European leaders, so the implied volatilities are set to remain well bid until the plan is ratified and put into action. In the meanwhile, protection is becoming expensive and skew continues to widen, marginally impacting some of our trades. Given these uncertainties, in addition to the concerns on global growth and the drawn-out negotiations on the US debt ceiling, we are continuing to protect the overall fund with long gamma exposure, even through the carry has barely paid off. Gamma trading contributed negatively to the performance of the fund in July.
Equity Strategies July was another difficult month for the equity market and for our equity book which contributed negatively to the performance of the fund. The market was mainly driven by the macro, with stress coming from the debt crisis, both from the European periphery and the US debt burden. The European market sold off 10% following the uncertainty surrounding Greece, bouncing 5% after a fairly convincing agreement was found for the Greek package, but gave back that 5% on the difficulty the US government was facing in finding an agreement to raise the debt ceiling. On top of the macroeconomic issues, the Q2 earnings season did not bring any relief to the market with the ratio of companies missing estimates to those outperforming estimates being the worst since at least 2006. There was still no tolerance to small misses, which translated into a large
2 number of stocks losing more than 10% on their earnings day. For example, this was very significant for the technology stocks, which had had very good performances up to June and had large expectations built into their prices, only to see massive corrections on outlook disappointments. By comparison, the US earnings were much better and the S&P500 was just trading 4% off its highs. Corporate activity, which was already fairly weak, became even weaker in this gloomy environment, as managements went into wait-and-see mode before pulling the trigger. With regard to the existing corporate situation, the big topic was the failure from News Corp to buy out the BSkyB’s minority shareholders following the phone hacking scandal in the UK. This was one of the very few (not to say the only) sizeable situations in Europe. In this difficult environment, we continued to trim our book aggressively and reduced the gross exposure of the equity portfolio by half (having already reduced it by a third in June).
Credit strategies Credit strategies returned negatively in July. This negative performance resulted mainly from our investments in corporate high yield, which cost the fund this month. In the last two newsletters, we wrote that we thought credit markets would continue to trade heavily. We feared that cash bonds would underperform CDS, which would have an adverse effect on our positions. This occurred once again in July, even though bonds were difficult to short (the repo market being extremely tight and unstable in high yield), and despite seeing very few position liquidations from institutional investors. Our investments in subordinated financials and contingent capital instruments returned negatively, as we had not reduced their hedges, having thought that the publication of the EBA stress tests would not prove to be a positive catalyst for spreads. With the usual decline in market activity over the summer, a full sovereign crisis resolution nowhere in sight and upcoming H1 earnings, we continue to expect volatility in European banks for now. We see continued pressure for European banks to increase their capital via all means possible (equity raisings, lower dividends, debt exchanges and buybacks, divestments, etc…). This means that our longer-term view remains constructive, but we do not think it is the time to increase our net long exposure. We made up for part of this negative performance by trading peripheral utilities and telecom incumbents. Our view was that results would be weaker than consensus forecasts, as the impact of weaker domestic markets would start to alter credit metrics. We have monetised the bulk of these positions which returned negatively in July. The policy measures unveiled after the Eurozone Heads of State summit, on 21 July, were stronger than expectations. The Greek package was not only larger than expected but it also contained more favorable terms. The summit also addressed contagion risk by broadening the mandate of the EFSF and allowing it to intervene in secondary bond markets and support banks in non-program countries. While these measures are clearly bullish for tail risk, we have yet to see clear signs of improvement in the two other main areas that are causing us to remain very cautious on spreads: better macro data and concrete progress in the US debt ceiling discussions.
Trading Trading contributed positively this month. 3 B. PRIVATE EQUITY INVESTMENTS On top of its investment in BG Fund, BGHL has entered into three private equity investments. These investments, which represent approximately 4% of the net asset value of BGHL, were marked at cost. Rasaland BGHL entered into Rasaland in June 2008 for $10 million. Rasaland is a Maltese company structured as a private equity fund in terms of fees and organisation and dedicated to invest in land, land development and high-end resort developments in Mexico. The EUR/USD exposure is hedged by an FX forward which is rolled on a 3 month basis. DSO Interactive On 9 December 2009 and 19 February 2010, BGHL acquired a minority stake in DSO Interactive for a total consideration of €1.7 million (6.18% of the share capital and 5.33% on a fully diluted basis). DSO Interactive is a private company incorporated in France and Head quartered in Paris, where it employs over 122 people. DSO Interactive provides bad debt collection services to consumer creditors such as telecom operators, banks and specialised credit institutions. Compagnie des Minquiers On 3 March 2011, Compagnie des Minquiers SAS, a subsidiary of BGHL (held jointly with the executive committee members of the Cofigeo group) has acquired 100% of the shares of the company MPF (renamed Financière des Minquiers), a holding company, holding 26,523 shares in Cofigeo negotiated on the regulated market NYSE Euronext in Paris representing approximately 36% of capital and 41% of voting rights. On 29 March 2011, in compliance with French securities laws Compagnie des Minquers has filed a mandatory tender offer for all the remaining shares of Cofigeo at a price of €530. With sales of roughly €135 million and approximately 650 employees, Cofigeo is a leading player in France in the canned food industry. The group sells prepared meals and sauces under the brands Zapetti (formerly- Buitoni) and Raynal & Roquelaure as well as under private labels. It ranks #2 in France with a market share of approximately 25%. BGHL’s total investment in the transaction amounts to approximately €18 million, which represents less than 3% of its NAV.
4 C. BOUSSARD & GAVAUDAN ASSET MANAGEMENT UPDATE Transaction in the Company's securities Please note that transactions in the Company's securities that have been performed by officers, directors and persons referred to in the section 5:60 of the Financial Supervision Act ("Wft") are reported: • directly on the AFM website: www.afm.nl (public database > notification > insider- transactions 5:60 wft); • on the Company’s website through a link to the AFM notification: www.bgholdingltd.com (Investment Manager > Regulatory information). Transactions in the Company’s own securities are also reported on: • the AFM website: www.afm.nl (public database > notification > price-sensitive press releases); • the Company’s website: www.bgholdingltd.com (Investor Relations > Financial announcements).
BG Fund AUM As of 1 August 2011, assets under management are at €1.31bn. Please note that Emmanuel Gavaudan has relocated to our London offices. His new contact details are below. We are sorry to announce that Pierrick Buysschaert on the client services’ team has left the firm. We wish him luck for the future. He has been replaced by Romain Rossetti. Romain is 24 years old and is a graduate from Euromed Management. Sincerely, E. Boussard & E. Gavaudan Contact information
Investors Boussard & Gavaudan Asset Management, LP 1 Dover Street London W1S 4LA
Media Financial Dynamics Holborn Gate 26 Southampton Buildings London WC2A 1PB
5 Disclaimer The Company is established as a closed-ended investment company domiciled in Guernsey. The Company has received the necessary approval of the Guernsey Financial Services Commission and the States of Guernsey Policy Council. The Company is registered with the Dutch Authority for the Financial Markets as a collective investment scheme pursuant to article 2:73 in conjunction with 2:66 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The shares of the Company (the "Shares") are listed on Euronext Amsterdam. The Shares are also listed on the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange plc's main market for listed securities. This is not an offer to sell or a solicitation of any offer to buy any securities in the United States or in any other jurisdiction. This announcement is not intended to and does not constitute, or form part of, any offer or invitation to purchase any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law. Neither the Company nor Boussard & Gavaudan Fund Plc has been, and neither will be, registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition the securities referenced in this announcement have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"). Consequently any such securities may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, US persons except in accordance with the Securities Act or an exemption therefrom and under circumstances which will not require the issuer of such securities to register under the Investment Company Act. No public offering of any securities will be made in the United States. You should always bear in mind that: all investment is subject to risk; results in the past are no guarantee of future results; the investment performance of BGHL may go down as well as up. You may not get back all of your original investment; and if you are in any doubt about the contents of this communication or if you consider making an investment decision, you are advised to seek expert financial advice. This communication is for information purposes only and the information contained in this communication should not be relied upon as a substitute for financial or other professional advice.
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