6th May 2010 14:07
BLACKROCK ABSOLUTE RETURN STRATEGIES LTD
Interim Management Statement - 3 months to 31 March 2010
To the members of BlackRock Absolute Return Strategies Ltd
This interim management statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure & Transparency Rules. It should not be relied on by any other party for any other reason.
This interim management statement relates to the period from 1 January 2010 to 31 March 2010, and contains information that covers this period, and up to the date of publication of this interim management statement. Please note further detailed performance information, including the estimated weekly net asset values are available on the Company's website www.blackrockinternational.com/ bars/library/literature.
BlackRock Absolute Return Strategies Ltd is a diversified fund of hedge funds investment vehicle with exposure to absolute return strategies which seek to generate absolute returns in excess of the yields on short term LIBOR securities, while endeavouring to minimise the corresponding level of volatility.
The Company aims to generate a target net return of approximately 3 month LIBOR plus 6% per annum with a standard deviation of 8%. Performance Commentary
Global markets largely continued to move away from their recessionary lows in the first quarter, as investors appeared to be encouraged by small but notable improvements in consumer spending, industrial production and employment. Although the global rebound is still somewhat tenuous, investors appear to remain fairly confident, generally shifting capital to higher risk segments of the marketplace.
Nonetheless, despite a broader backdrop characterised by ongoing recovery, pockets of economic strain continue to give the market reasons to remain vigilant for larger systemic issues. Last quarter, the default in Dubai temporarily spooked investors. In the latest quarter, a cautious focus was concentrated in the European Union, where several economically weak countries appeared to flirt with potential defaults of their sovereign debt without some sort of outside assistance. Greece appears to be the focal point, perceived as the greatest default risk in the region as reflected by more than a 300% increase in CDS pricing (i.e., the price of insuranc
Stock Performance
Cumulative Performance:
31 March 31 December 30 September 30 June Since 2010 2009 2009 2009 Launch*US$ Shares Share Price $8.35 $7.40 $7.20 $6.15 -16.5Net Asset Value per share $9.62 $9.32 $8.95 $8.31 -3.8Discount 13.20% 20.60% 19.55% 25.99% - EUR Shares Share Price €7.85 €7.31 €7.16 €6.02 -21.5Net Asset Value per share €9.35 €9.04 €8.68 €8.08 -6.5Discount 16.13% 19.14% 17.51% 25.50% - GBP Shares Share Price £7.88 £7.23 £7.13 £6.15 -21.2Net Asset Value per share £9.35 £9.04 £8.67 £8.04 -6.5Discount 15.72% 20.02% 17.76% 23.51% -*launch 24 April 2008Manager's Reviewe against potentialdefault). A sovereign default within the EU would likely cast greater doubt onthe fiscal integrity of select other member countries, in turn raising interestrates that may send the region back into recession, or worse, create a run onselect sovereign issuers that could possibly develop into a financial panic.Yet, popular opposition within fiscally conservative (yet stillrecession-impacted) countries to backstopping profligate nations is likely topolitically complicate an ultimate resolution. As a result of this uncertainty,a number of EU-based markets posted losses for the quarter as investors movedto the sidelines.
Additionally, investors continue to think ahead about how global governments will be unwinding the massive amounts of existing monetary accommodation, and are watching global central bank actions very carefully for clues to the steps and ultimate timing of a monetary tightening. Thus far, the Federal Reserve and other leading central banks have been very clearly and deliberately messaging their intentions, which have been to maintain the status quo, but reel in select emergency measures. However, when that message changes, investors are likely to experience heightened volatility as they collectively adjust their forward-looking views and their portfolios.
Global equity markets generally extended gains from recent quarters, starting the year in a strong fashion for many regions. In the US, the S&P 500 Index closed up 5.4% for the quarter, and the Japanese Nikkei 225 Index appreciated 4.7%. The MSCI Emerging Markets Index rose 2.5%, but was hindered by declines in China. European markets, as measured by the MSCI Europe Index, were the notable laggard, falling 1.8% for the period, led by double-digit declines in fiscally weak countries such as Greece, Spain and Portugal (all index performance in USD).
Relative value strategies were generally helped by improved convertible bond pricing impacted by tightening credit spreads, rising equity prices and a reduced supply of new issuance coming into the market. While a reduced issuance translated to fewer primary market opportunities, convertible arbitrage managers have instead in many cases focused energy on special situations trades, taking advantage of restructuring opportunities such as a convertibles-for-equity conversion in a transportation services provider that experienced improving fundamentals, as well as bond holdings where the manager is working with the issuer to put back to the issuer at a premium to the market, but at a discount to the intrinsic value of the bond.
Despite the recent downturn in convertible supply, many managers are still optimistic for traditional convertible arbitrage opportunities as the year progresses. Should interest rates begin to rise and equity markets flatten, there may be a greater appetite for hybrid securities relative to straight bond and equity markets, especially as credit spreads continue to fall. Also, a greater prevalence of outright buyers for convertibles (as opposed to hedge fund buyers) tends to increase price volatility in the space, creating a larger forward potential for mispricings that managers can act upon.
Rates managers in many cases took advantage of policy uncertainty and the natural consequences of a potentially dynamic rate environment. Certain managers found profitable opportunities in Treasury futures markets to arbitrage distortions in the US yield curve, due in part to heavy Treasury issuance over the last several months, market hedging activity and a lack of competition from proprietary trading desks. Indicating the technical volatility and the general nervousness around sovereign debt, swap spreads on select US Treasurys have recently been trading at a negative credit premium (in effect implying a higher chance of default by the government than by the bank counterparty). We expect distortions such as these to continue to be fairly widespread in the near future, generated by shifting investor preferences, government actions (such as the end of Federal Reserve's mortgage purchase program), broader uncertainty over the future path of the recovery, and the reduced presence of institutions (such as proprietary desks) that have historically taken advantage of these discrepancies.
Notably, while some managers are profiting from policy and price normalisation, other trades are being used to construct relatively inexpensive diversification against the potential for further economic trouble. For example, one manager generated favourable results through LIBOR vs. OIS spread positions, trading around volatility in intra-bank credit risk. In another case, a manager is constructing a trade with an asymmetric payoff in short-term rates in South America where the manager believes the probability of anticipated rate increases are overpriced. In this case, the manager is expected to take only minor losses should rates move up as the market anticipates, but generate potentially large gains if rate hikes are delayed or less substantial than expected. The trade has an added benefit of becoming more valuable should the global or regional economy stumble, again serving as a possible hedge within a fragile recovery.
Risk arbitrage strategies within the event driven space were characterised by muted volatility of deal spreads and the closure of select mega-deals. Among a number of others, several large deals - Disney/Marvel Entertainment, Oracle/Sun Microsystems, Berkshire Hathaway/Burlington Northern Santa Fe, Kraft Foods/ Cadbury - closed during the quarter, providing a source of gains for many managers. In addition, new deal volume has been solid, with $500 billion of deals announced in the first quarter. Furthermore, continuing deals such as Exxon Mobil's planned acquisition of XTO Energy have also been additive, in this case exhibiting a deal spread that narrowed late in the quarter as the transaction received regulatory approval.
With a backdrop of cash-rich companies and the prospect of economic recovery, the merger and acquisition space has been active in recent months, characterised by hostile takeovers, bidding wars and demands for increased offers by target company shareholders. This kind of environment can provide rich opportunities for managers that have a firm grasp of a fair valuation of companies, as well as the competitive dynamics within a given industry. We anticipate deal-making to remain active, as many companies have improved capital structures and operations, cut costs and increased cash reserves, putting them in a position to acquire competitors at attractive prices. On the whole, recently announced deals have generally exhibited greater complexity through hostile situations, anti-trust concerns, competitive bidding, termination fees and other potential considerations. These types of situations may offer greater pricing inefficiencies for managers to generate alpha through in-depth fundamental work.
Positive quarterly performance for distressed strategies was largely driven by core holdings across the financial, real estate and automotive industries. General Growth Properties (GGP) was a notable driver for the quarter, as multiple participants came forth with offers to recapitalise the real estate giant or purchase it outright. One of GGP's main competitors, Simon Property Group, announced a $10 billion unsolicited takeover offer in February that would have resulted in a par plus accrued interest return to debt holders and $9 per share to equity holders. GGP subsequently received an improved offer from Brookfield Asset Management, followed by yet another higher bid from Fairholme Capital Management and Pershing Square Capital. At quarter-end, GGP filed a motion to seek approval of the latter proposal, though Simon Property Group appeared to maintain an interest and the situation remains unresolved.
Meanwhile, Lehman Brothers claims generally traded higher in the quarter as a reorganisation plan was released in mid-March that exceeded many investors' expectations with regard to the timing and level of potential recoveries. Other winners included AIG, Washington Mutual, Icelandic banks and auto exposures, while chemicals names generated mixed performance. Outside of corporate credit, managers continued to pursue opportunities in smaller bank failures, portfolio and asset sales from banks and FDIC auctions and distressed commercial industrial loans.
Despite dwindling default volumes, most distressed managers continue to perceive a vigorous opportunity set with the existing supply of distressed securities. The percentage of lower-rated bonds continues to trend higher, and growing volumes of new issuance used to refinance troubled companies may simply delay their ultimate failures, possibly extending distressed opportunities for years to come.
Fundamental long/short credit managers on average posted gains supported by spread tightening from slowly improving economic data and robust net retail inflows, but notable volatility in spreads were fuelled by sovereign debt concerns, particularly within the EU. New credit issuance sustained a healthy pace, and provided a strong opportunity set for managers, with January and March activity breaking previous records for those months, while the $76.8 billion total in the first quarter shattered the previous mark by more than $15 billion.
Given the uncertainty in the macro environment, managers in aggregate continue to closely monitor net market exposures, in many cases generating performance through more idiosyncratic special situation or catalyst-driven opportunities. Such trades might include credits that have a heightened possibility of being refinanced or retired, with recent examples including a radio broadcaster's bank debt issue that was repurchased by the issuer above its market price, and the debt of a diversified Middle Eastern holding company that responded positively to a comprehensive restructuring plan. Argentine debt was also a notable source of performance for some managers in the quarter. Valuations for the region's sovereign issues generally strengthened upon the country's recent offer to exchange defaulted debt that had previously been untendered. While political uncertainty and a delay of the debt swap caused some mid-quarter volatility, the late-March announcement that the exchange had been approved by the US Securities and Exchange Commission renewed the bonds' rally.
Earnings announcements were a key driver of equity performance for the quarter, with companies generally beating pessimistic investor expectations. As year-ago comparables improve from their recessionary lows, and as investor expectations rise, the market may need to produce material fundamental growth to sustain its upward trajectory. Consequently, many managers are undecided as to the future direction of the broader market, and continue to maintain a healthy balance in their long and short positioning. Long positions have recently been somewhat biased toward higher-quality companies with strong pricing power, healthy balance sheets and multi-national revenue streams, such as oil servicers, payment processors and broadband tower operators. Successful short-selling amidst strong equity rallies has generally been difficult in recent months, as companies with poor fundamentals have led the charge as investor attitudes have grown more optimistic. However, as the recovery matures and profits and market shares accrue to companies with stronger fundamentals, we expect a greater performance dichotomy between sound and feeble companies.
Looking forward, managers continue to refer to a strong pipeline of fundamental investment theses within a period of economic change. Nonetheless, we believe it is likely that country and region specific developments will continue to influence broader market performance. Top-down considerations, such as the credit-related issues in Europe, policy tightening in China, and the influence of US monetary policy, among others, may at times dominate security-specific factors, highlighting the importance of hedging and diversification to mitigate such risks if they are not core to an investment thesis.
The new origination of securities by direct sourcing managers has generally remained at reduced levels in recent quarters, given the attractive spreads available in secondary markets. However, in the first quarter of 2010, this trend began to shift (albeit at a modest pace) as secondary market spreads have tightened, while corporations continue to require fresh capital and traditional lenders remain truant.
Direct sourcing activity continues to be highly idiosyncratic, as managers maintain a high degree of selectivity amidst a large opportunity set. For example, one source of opportunity has been "orphaned assets" - non-core corporate assets that do not factor into the future plans of a business or may weigh on a corporation's balance sheet. This has been particularly lucrative where there is a dearth of capital competing for assets. One manager was recently able to purchase an office building in Paris from a corporate seller looking to reduce its balance sheet. The property is almost fully leased with relatively secure cash flows due to government tenants, but was purchased by the manager at a price equivalent to the value of the developable land due to the limited amount of capital competing in this market and its relatively large scale. The price of the asset is estimated by the manager to imply an 18% IRR on capital invested.
Though there has been strong market appetite for larger high-yield issues in recent quarters, we understand that smaller companies (e.g., those with under $100 million EBITDA) may still face difficulty accessing capital markets, representing an ongoing opportunity for direct sourcing managers. Additionally, we anticipate that borrower defaults and regulatory changes which compel institutions to downsize balance sheets may also, over time, feed a supply of more complex assets, such as real estate, commodities or business ventures that may be available at attractive prices. We expect certain direct sourcing managers with established platforms and expertise in managing physical assets to be well-suited to this opportunity set.
Investment Outlook
In our view, financial recoveries generally comprise three stages:
I. Price correction: the immediate aftermath of panic-driven pricing, with opportunities driven by the normalisation of heightened risk premiums and a ubiquitous undervaluation of assets.
II. Balance sheet repositioning: a massive strategic deleveraging effort by struggling and failed institutions, creating intermediate-term supply/demand imbalances in key market segments.
III. Industry restructuring: where the spotlight shifts to value drawn from an abundance of companies and industries in longer-term reorganisation.
Over the past year, participating investors have generally benefited from broad price appreciation as risk attitudes have normalised from their extreme levels, fulfilling much of the promise of the first phase of this framework. Now, we believe the opportunity set has expanded as we progress into the second leg of the recovery. In particular, many institutions weakened by the recent economic turmoil remain saddled with impaired legacy assets, and are focused on disposing of enormous volumes of these assets to shore up their balance sheets and exit non-core businesses.
The scale of global deleveraging and supply of impaired assets is potentially massive. Citigroup and RBS alone have placed close to a trillion dollars of impaired assets in newly formed entities to facilitate disposition. Over $1.3 trillion in commercial real estate loans are due to mature in the next five years, but due to a lack of financing, lower occupancy levels, softer lease rates, and higher cap rates, the scope for writedowns (and their detrimental impact on the US banking system) looms large. Notably, over $770 billion of commercial real estate loans maturing through 2014 have loan-to-value ratios in excess of 100%. Thousands of banks in the US are already capital deficient and may have to sell assets or go into liquidation, increasing the burden on the FDIC to recycle these assets. Furthermore, approximately $800 billion in leveraged loans and high-yield debt matures by 2014. While access to capital for corporations has improved dramatically since the crisis, many capital structures with deficient business models still remain overleveraged, inevitably requiring restructuring yet again.
During the first stage of the crisis, financial institutions found it challenging to shed assets due to lack of price discovery, inadequate reserve levels and little demand. With these aspects improved, there will be additional pressures to deleverage brought to bear by regulators, shareholders and possibly the rates markets if banks can no longer fund non-performing assets at such de minimus cost.
Many of these impaired assets are opaque and complex, with relatively few remaining sophisticated buyers staffed with the personnel and infrastructure able to understand or act upon these types of mispriced opportunities. In addition, the crisis has dramatically reduced investor appetite for longer-dated assets, with many investors encumbered by pre-crisis capital commitments and legacy portfolios, and thereby focused on the most liquid opportunity set. More specifically, proprietary trading desks, many hedge funds, middle market lenders and other niche organisations that have traditionally served as critical sources of funding and key components to balancing supply and demand, have largely withdrawn from the marketplace.
The result is dramatically less capital competing over a burgeoning supply of longer-dated assets. This supply/demand imbalance underpins a pronounced illiquidity risk premium, with an opportunity set made more sustainable by the characteristics of this financial recovery. This illiquidity risk premium is evident in observing failed bank assets auctioned off at substantial discounts to fair value, middle market borrowers offering notably attractive terms to obtain capital, abandoned asset classes (such as real estate and collateralised asset-backed securities) offering robust potential IRRs and asymmetric risk profiles, and an enhanced ability to take control of troubled assets at a material markdown to their market or replacement value. Hedge funds with the capability to manage and service these assets in addition to acquiring them on a less competitive basis should reap the benefits for years to come. One should recognise that illiquidity can be characterised by higher volatility and that these strategies may not always have a clear and steady path, but it is our belief that more patient capital with a multi-year time horizon can earn compelling returns.
We continue to believe that investors seeking attractive risk-adjusted returns are more likely to find them in areas of the market rife with inefficiencies and where capital is priced at a premium, rather than crowded beta-driven segments where capital is abundant. We believe that skilled ARS managers stand to benefit from a cornucopia of misunderstood assets within a thorny atmosphere of dynamic economic change, financial reform and regulatory uncertainty, extensive government monetary intervention and withdrawal, complex financial instruments, and volatile risk attitudes. While plentiful opportunities are likely to continue to emerge within the shorter-end of the liquidity spectrum, we welcome the favourable prospects for longer-maturity assets in the months and years ahead.
Material Events & Transactions
There were no material events or transactions, except as disclosed, during the three months to 31 March 2010, nor was the Company involved in any other material transactions during the period except the purchase and sale of securities undertaken in the normal course of its business.
Conversion of Shares
Completion of the December 2009 Share Conversion between Share Classes
The following announcement was made on 27 January 2010 in respect of the above:
"The table below summarises the aggregate conversion requests received in respect of the December 2009 Currency Conversion Calculation Date:
Currency of Share to be converted to Currency of Share Total Shares £ Shares EUR Shares US$ Shares to be converted to be from converted GBP denominated shares 72,601 - 917 71,684 EUR denominated shares - - - - US$ denominated shares 75,723 75,723 - - Conversion Ratios
The Currency Conversion Calculation Date was 31 December 2009. On the basis of the net asset values of the Company's Shares as at 31 December 2009 (as previously announced on 27 January 2010) (and using assumed spot currency exchange rates as appropriate at the currency Conversion Calculation Date), the conversion ratios, calculated in accordance with the Company's Articles of Association, are as follows:
1.56821606 US Dollar denominated share for every one Sterling denominated share 1.12758996 Euro denominated share for every one Sterling denominated share 0.63765302 Sterling denominated share for every one US Dollar denominated share
The following foreign exchange rates as at 31 December 2009 were used:
GBP / USD 1.6173EUR / GBP 0.8858USD / GBP 0.6183
Shareholder CREST accounts for those shareholders for whom conversion requests have been received will be credited with new shares on 28 January 2010.
The Company has made an application to admit 48,285 Sterling denominated Shares, 1,034 Euro denominated Shares and 112,416 US Dollar denominated Shares to the official list of the UK Listing Authority and to trading on the London Stock Exchange on 28 January 2010."
March 2010 Share Conversion between Share Classes
The results of the 31 March 2010 Currency Conversion Calculation Date were announced on 17 March 2010. Conversion notices were received from shareholders as follows:
Shares converting from:
Euro denominated Shares to Sterling denominated Shares 243,036 Sterling denominated Shares to Euro denominated Shares 653 US Dollar denominated Shares to Euro denominated Shares 160,090
Conversion will occur within 30 days of the currency Conversion Calculation Date, prior to which the Company will announce the conversion ratios to be used.
Completion of the March 2010 Share Conversion between Share Classes
The following announcement was made on 29 April 2010 in respect of the above:-
"The table below summarises the aggregate conversion requests received in respect of the March 2010 Currency Conversion Calculation Date:
Currency of Share to be converted to Currency of Share Total Shares £ Shares EUR Shares US$ Shares to be converted to be from converted GBP denominated shares 653 - 733 - EUR denominated shares 243,036 216,274 - - US$ denominated shares 160,090 - 121,964 - Conversion Ratios
The Currency Conversion Calculation Date was 31 March 2010. On the basis of the net asset values of the Company's Shares as at 31 March 2010 (as previously announced on 27 April 2010) (and using assumed spot currency exchange rates as appropriate at the Currency Conversion Calculation Date), the conversion ratios, calculated in accordance with the Company's Articles of Association, are as follows:
0.76184646 Euro denominated share for every one US Dollar denominated share 0.88988463 Sterling denominated share for every one Euro denominated share 1.12251149 Euro denominated share for every one Sterling denominated share
The following foreign exchange rates as at 31 March 2010 were used:
EUR / USD 1.35095GBP / EUR 1.123876EUR / GBP 0.889778
Shareholder CREST accounts for those shareholders for whom conversion requests have been received will be credited with new shares on 30 April 2010.
The Company has made an application to admit 216,274 Sterling denominated Shares and 122,697 Euro denominated Shares to the official list of the UK Listing Authority and to trading on the London Stock Exchange on 30 April 2010."
Voting Rights
It was announced on 28 January 2010 that with effect from 1 January 2010, in accordance with the provisions of the Company's prospectus to reflect the relative net asset values of the Company's shares on 31 December 2009 the voting rights per share had been amended to:
Euro denominated Share - 1.4 voting rights per share US Dollar denominated Share - 1 voting right per share Sterling denominated Share - 1.6 voting rights per share
June 2010 Redemption Offer
On 23 February 2010 the following announcement was made in respect of the June 2010 redemption offer:
"During the year ended 31 December 2009 the estimated net asset value of the Company's US Dollar, Euro and Sterling denominated Shares increased by 22.66%, 22.18% and 22.79% respectively and for the month to 31 January 2010 increased by 1.39%, 1.43% and 1.41% respectively. Whilst performance was disappointing in the latter part of 2008 the Board has been encouraged by the Company's subsequent progress and the substantial narrowing of the share price discount.
This recent performance places the Company in the top quartile in the Morningstar listed hedge fund of funds during the year ended 31 December 2009 and year to date.
As at 18 February 2010 the share price discounts to net asset value of the US Dollar, Euro and Sterling denominated Shares were 15.25%, 15.67% and 15.50% respectively. With the aim of narrowing these discounts, the Board has concluded that it would be in the interests of shareholders as a whole for a limited cash exit to be made available to each share class in lieu of the June redemption facility which will not be implemented. A further announcement will be made in the near future."
Proposed Reverse Auction Tender Offer
The Company announced on 17 March 2010:
"The Company's net asset value ("NAV") continues to deliver strong positive returns. In 2009, the NAVs of the Sterling, Euro and US Dollar denominated Shares appreciated by 22.79 per cent., 22.18 per cent. and 22.66 per cent. respectively and during the period 31 December 2009 to 5 March 2010 this good performance has continued with estimated NAV appreciations of 1.88 per cent., 1.88 per cent. and 1.79 per cent. of those Share classes.
However the Share price discount to NAV of each Share Class remains relatively wide due in part to the fact that some Shareholders have decided to reduce their holdings and to the limited liquidity of the Shares in the secondary market.
With the intention of alleviating this selling pressure, the Board announces that, conditional on Shareholder approval at an Extraordinary General Meeting of the Company, the Company intends to make a reverse auction tender offer (the "Reverse Auction Tender Offer").
The Reverse Auction Tender Offer is proposed to be open only to Shareholders on the register at 5.00 p.m. on 16 March 2010 ("Eligible Shareholders") and will be in respect of (i) the Shares held at that time and/or (ii) the Shares arising (if applicable) from conversion from one currency class to another in respect of the Company's currency conversion calculation date of 31 March 2010.
Under the proposed Reverse Auction Tender Offer, up to 7.50 per cent of each of the Sterling, Euro and US Dollar denominated Shares in issue on the date of the publication of the Circular mentioned below (the "Available Shares") will be purchased. Eligible shareholders of each Share class will be able to tender for purchase some or all of their Shares at their chosen level of discount to the relevant NAV as at 30 June 2010 (each a "Discount Level") subject however to a minimum discount level of 9.00 per cent (the "Minimum Discount Level"), which would result in Available Shares being purchased at a price equal to 91.00 per cent. of that NAV.
The prices at which tendered Shares of each Share class will be purchased (the "Strike Prices") will be determined by applying the highest Discount Level at which the Company could purchase all the Available Shares of that Share class. The priority in which Shares of each class will be purchased at the relevant Strike Price will be determined by the Discount Level at which they are tendered, with Shares tendered at a higher Discount Level having priority over Shares tendered at a lower Discount Level in any particular class and with any excess at the relevant Strike Price being purchased from Shareholders pro rata to the number of Shares tendered at the relevant Strike Price. All Shares purchased pursuant to the Reverse Auction Tender Offer will be held in Treasury. Shareholder approval will also be sought at the Extraordinary General Meeting for a second reverse auction tender offer to be implemented at the Directors' discretion in December 2010.
Although the Board intends to proceed with the Reverse Auction Tender Offer as set out in this announcement, the final decision to do so will be taken in light of market conditions at the relevant time. The Company reserves the right not to proceed with the Reverse Auction Tender Offer on the terms set out in this announcement or at all.
Discount Control Mechanism
In addition, the Board also intend where they consider it appropriate to implement additional share buybacks, pursuant to a general authority from Shareholders, so as to provide further liquidity to the market and with a view to maintaining the rating of the Shares at an acceptable level.
A Circular with the terms of the Reverse Auction Tender Offer and related documentation are expected to be posted to Shareholders on or around 30 April 2010. The Extraordinary General Meeting is expected to be held on 29 June 2010, when it is also anticipated that the Annual General Meeting will be held. The results of the Reverse Auction Tender Offer are expected to be announced on 20 July 2010 and the Strike Price on 2 August 2010.
EXPECTED TIMETABLE
Event Time and/or dateRecord Date for Reverse Auction Tender 5.00 pm on 16 March 2010
Offer
Circular and Notice of Extraordinary on or around Friday, 30 AprilGeneral Meeting posted 2010Extraordinary General Meeting Tuesday, 29 June 2010Reverse Auction Tender Offer NAV Wednesday, 30 June 2010
Calculation Date
Latest time and date for receipt of tender Monday, 19 July 2010
forms and delivery of TTE Instructions
Announcement of results of Reverse Auction Tuesday 20 July 2010
Tender Offer
Settlement through Crest of unsatisfied Wednesday 21 July 2010tenders for Shares pursuant to the ReverseAuction Tender OfferAnnouncement of Strike Price for each class Monday, 2 August 2010"
of Shares
Financial Report
The Company announced its financial results for the year ended 31 December 2009 on 23 April 2010.
The Board is not aware of any material events or transactions, except as disclosed herein, occurring between 1 April 2010 and the date of publication of this interim management statement which would have a material impact on the financial position of the Company.
BlackRock (Channel Islands) LimitedSecretaryDate: 6 May 2010Important Information
AN INVESTMENT IN THE COMPANY IS SPECULATIVE AND INCLUDES A HIGH DEGREE OF RISK, INCLUDING THE RISK OF A TOTAL LOSS OF CAPITAL. THE COMPANYY AND/OR ITS UNDERLYING INVESTMENTS MAY BE ILLIQUID AND SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER, AND INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE RISKS ASSOCIATED WITH SUCH INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. ALL INVESTORS SHOULD CAREFULLY REVIEW THE CONFIDENTIAL PRIVATE OFFERING MEMORANDUM AND GOVERNING DOCUMENTS FOR THE COMPANYY PRIOR TO MAKING AN INVESTMENT DECISION. ANY INVESTMENT DECISION WITH RESPECT TO THE COMPANYY MUST BE BASED SOLELY ON THE DEFINITIVE AND FINAL VERSION OF THE FUND'S CONFIDENTIAL PRIVATE OFFERING MEMORANDUM, GOVERNING DOCUMENTS AND SUBSCRIPTION AGREEMENT. THERE IS NO ASSURANCE THE COMPANYY WILL ACHIEVE ITS OBJECTIVES.
This document is provided for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities described herein in the United States or in any other jurisdiction, nor shall it, by the fact of its distribution, form the basis of, or be relied upon, in connection with any contract therefore. This communication is being issued by the BlackRock Alternative Advisors business unit of BlackRock, Inc. ("BAA") for informational purposes only relating to BARS (as defined below). Potential investors are urged to conduct further due diligence prior to, and to consult a professional advisor regarding the possible economic, tax, legal or other consequences of, entering into any investments or transactions described herein. All investments risk the loss of capital and the value of shares may go up as well as down. There is no guarantee or assurance that an investment in the Company will achieve its investment objective. An investment in the Company is speculative and should form only part of a complete investment program, and an investor must be able to bear the loss of its entire investment. Shares are suitable only for sophisticated investors and may involve a high degree of risk.
In receiving this document and the information contained herein, you will be deemed to have represented and agreed for the benefit of the Company, BAA and its affiliates (together with BAA, "BlackRock") that you are permitted, in accordance with all applicable laws, to receive this document and such information.
BlackRock Absolute Return Strategies Ltd (ticker symbols BARS, BARE and BARU) ("BARS" or the "Company") is a closed-ended LSE listed multi-manager investment fund organised as a Jersey, Channel Islands company, which began operations on 1 May 2008. BARS seeks to generate a total annualised return of 6% above the annual yield for 3-Month LIBOR, with an 8% annualised standard deviation. No assurances can be given that the Company's objectives will be met.
No person has been authorised to give any information or make any representation not contained in this communication and if given or made any such information or representation may not be relied upon as having been authorised by BlackRock.
Certain Risk Factors
Past results are not necessarily indicative of future results.Historically, funds of funds and hedge funds have produced gains and losses due to changes within the equity, interest rate, credit, currency, commodity and related derivative markets. Additionally, gains and losses are impacted to varying degrees by investment acumen, market volatility, corporate activity, securities selections, regulatory oversight, trading volume and money flows. These elements and/or their rate of change may not be present in the future, and thus future performance may be impacted. Any investment in a fund involves a high degree of risk. Investments in funds of funds and hedge funds can be highly illiquid.
The performance of funds of hedge funds will depend on the performance of the underlying fund investments. There can be no assurance that a multi-manager approach will be successful or diversified, or that the collective performance of underlying fund investments will be profitable. Underlying fund managers may be subject to limited regulation (or may not be registered with any regulatory body), may experience potential conflicts of interest with respect to their management of allocated Company assets and from time to time, vis- -vis other underlying managers, may take opposing positions with respect to particular securities or investments. The Company will rely on information provided to it by the underlying fund managers and there may be limited ability to confirm or verify such information.
Underlying fund managers may implement a variety of investment strategies and techniques, including short selling, leverage, hedging (such as derivatives, swaps, forwards, futures and options) and securities lending. Underlying fund managers may invest in a wide array of investments, including non-US investments, non-US currencies, distressed assets, illiquid investments (such as those subject to legal or regulatory restrictions on transfer), and commodities and futures, each of which may have diverse associated risks, including counterparty risk, credit risk and liquidity risk.
The secondary market for investments in the Company or its underlying fund investments is a recent development and as such may exhibit illiquidity, wide or non-existent bid-offer spreads, and brokerage charges. In addition, there may be restrictions on transferring fund investments. A fund may be leveraged, which may increase the risk of investment loss, and its performance may be volatile. Funds of funds and hedge funds may involve complex tax structures; therefore, there may be delays in distributing important tax information. Funds of funds and hedge funds are not subject to the same regulatory requirements as SEC registered funds or mutual funds and are not required to provide periodic pricing or valuation information to investors. The Company and its underlying fund investments may have significant fees and expenses that would reduce returns.
Performance Record
All share class performance represents the weighted average gross performance (net of expenses) of Q-BLK Appreciation Fund, L.P. and Q-BLK Appreciation Fund, Inc. (prior to 1 April 1998), Q-BLK Strategic Partners, Inc. (from 1 April 1998 to 31 October 2001),QIP, Ltd. (from 1 November 2001 to 31 July 2004) and QARS3-I, Ltd (from 1 August 2004 through 30 April 2008), all of which have the same investment mandate as the Company. The gross returns are then adjusted to reflect the applicable BARS - GBP, BARS - EUR, or BARS - USD fee. Performance from 1 May 2008 is net of applicable fees and currency and other expenses as applicable to each share class. The performance history of the Company includes related funds with differing fee structures. The actual net performance of the Company's historic record prior to 1 May 2008 (including USD denominated classes of the related funds and calculated for the period during which such funds are included in the historic record) was 183.2%. Certain of these funds may offer share classes denominated in a non-US currency which are not included in the calculation of the BARS' performance; these share classes generally incur additional expenses to hedge against the US Dollar. All performance numbers are estimates calculated on an accrual basis during the accounting close process for the Company and are based on estimated returns provided by each underlying fund manager. These calculations are based on estimated returns rather than final reported information in order to provide timely performance return information to investors. As a result, the performance numbers shown may differ from performance numbers based on the final financial information for each underlying fund and adjustments are made prospectively unless the Investment Manager determines the difference was material. Estimated performance numbers are particularly susceptible to inaccuracies during period of market volatility or uncertainty, and additional information may become available subsequently that materially alters these estimates.BARS will be audited annually by an independent public accounting firm; therefore, the performance information presented herein will contain unaudited net asset value information for periods that have not yet been audited. Performance numbers themselves have not been audited. Performance results reflect the inclusion of all realised and unrealised gains and losses and the reinvestment of earnings. Risk is computed as the annualised standard deviation of monthly returns. The Sharpe Ratio for GBP, EUR and USD currencies measures the return earned over LIBOR (GBP), LIBOR (EUR) and ML T-bills, respectively, per unit of risk taken.
In calculating performance for BARS - GBP (Blended - net) and BARS - EUR (Blended - net), the USD performance (net of applicable fees and expenses) for the relevant funds has been converted to GBP and EUR, respectively, using relevant one month GBP/USD and EUR/USD spot rates and then using forward rates to hedge currency risk, each as supplied by Bloomberg L.P. In addition, the costs of currency hedging have not been included in the performance calculation nor have we assumed the hedging of any profits generated during each month. Following the 1 May 2008 launch of the GBP and EUR denominated share classes, actual performance includes hedging costs.
This performance information is an estimate that is subject to change and based in part on estimates received from the underlying funds' administrator or investment advisor, in some cases using assumptions that may be complex and susceptible to significant uncertainty, and may prove incorrect. Estimated valuations are particularly susceptible to inaccuracies during periods of market volatility or uncertainty, and additional information may become available subsequently which materially alters assumptions or other inputs to the estimates. This may result in a material change to the Company's estimated reported net asset value and performance estimate. Should the net asset value materially change, the Company will retroactively revise all capital transactions of impacted investors as appropriate.
Contribution to return estimates are based upon primary discipline. These estimates, as well as the other information contained herein, are being provided at the specific request of the recipient and are current as of the date of this report. As a result, data shown for a particular period may vary from one report to another. It is important to note that the contribution to return estimates are based on certain opinions and assumptions about primary discipline which constitute the judgment of BAA and are subject to change. In addition, many fund managers operate under broad investment mandates and invest in multiple disciplines and/or strategies. No attempt has been made to attribute single fund manager performance across multiple disciplines. As a result, the contribution to return estimates provided herein may be of limited use.
Minor variances in column, row and sectional totals are the result of rounding and have been allowed to maintain the integrity of the underlying financial data. Information relating to the Company's performance and its underlying managers' qualifications, strategy exposure or portfolio composition was prepared by BAA based on information believed to be reliable; however, no assurance of its completeness or accuracy can be made. In some cases, the Company's underlying managers may manage more than one investment program. The performance information presented herein relates only to the described investment program. BlackRock also advises other portfolios whose historical risk/return characteristics may be significantly different.
Indices
Index performance is taken from Bloomberg Financial Markets or the index's proprietary website and is included for comparison only and, although useful for general observations, differences between the composition and construction of such indices and the Company's portfolio may limit their usefulness for direct comparisons. For example, it should be noted that hedge fund indices will vary, in some cases significantly, from the composition of the Company's portfolio in terms of the number of positions, types of hedge fund strategies included and distribution within such hedge fund strategies and other characteristics. Comparison of the Company's results to indices that represent asset classes other than hedge funds or funds of hedge funds are further limited by the significant inherent differences between such asset classes, for example in terms of risk/return, correlations and other characteristics. Moreover, index information may or may not reflect the deduction of fees and expenses (refer to specific definitions), which could further limit the comparative value of such information relative to the Company.
Characteristics of securities included within the indices are subject to change between rebalancing periods. These characteristics are applicable when securities are evaluated at rebalancing points but may be higher or lower during interim periods. Additionally, index providers may have varying methodologies for measuring and implementing constituent changes and differing rebalancing periods.
FTSE All-Share Index is a capital-weighted index that includes 98-99% of the UK market capitalisation. Returns are denominated in GBP and include gross dividends. The Index is a proxy for the performance of the broad UK equity market.
MSCI World Index is a capital-weighted index that includes the largest firms making up 60% of each country's aggregate capitalisation. The Index includes 23 developed market indices. Returns are denominated in USD and include dividends. The Index is a proxy for the performance of the world's developed equity markets.
HFRI Fund of Funds Conservative Index (USD) ("HFRI FOF Conservative Index (USD)") is an equal-weighted index representing funds of funds that invest with multiple managers focused on consistent performance and lower volatility via absolute return strategies. The Index includes funds of funds tracked by Hedge Fund Research, Inc. and is revised several times each month to reflect updated fund return information. The Index is a proxy for the performance of the universe of conservative funds of funds focused on absolute return strategies. Returns are net of fees and are denominated in USD. Source: Hedge Fund Research, Inc., © HFR, Inc. 15 April 2010, www.hedgefundresearch.com.
The BofA Merrill Lynch GBP 3-Month LIBOR Constant Maturity Index ("BofAML GBP 3-Month LIBOR") represents the GBP return on three month securities in the Eurodollar market invested at the London Interbank Offer Rate (LIBOR). LIBOR is the offer side of the interest rate banks charge each other on short-term money, and is an average derived from sixteen bank rate quotations, fixed daily by the British Bankers' Association (BBA).
MSCI Emerging Markets Index ("MSCI Emerging Markets") is a capital-weighted index that includes securities in global emerging markets. Returns are denominated in USD and include dividends. The Index is a proxy for global emerging markets.
MSCI Europe Index ("MSCI Europe") is a capital-weighted index that includes securities in developed Europe. The Index includes 16 developed market country indices. Returns are denominated in USD and include dividends. The Index is a proxy for the developed European equity markets.
Nikkei 225 Index (USD) ("Nikkei 225 Index") is a price-weighted index of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. Returns are denominated in USD. The Index is a proxy for the performance of the Japanese equity market.
S&P 500 Index ("S&P 500 Index") is a capital-weighted index that includes 500 stocks representing all major industries. Returns are denominated in USD and include dividends. The Index is a proxy of the performance of the broad US economy through changes in aggregate market value.
Additional Information Concerning Portfolio Characteristics
Certain statements contained in this document may be forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the scenarios and events described herein.
Forward-looking statements contained in this document that reference past trends or activities should not be taken as a representation that such trends or activities will necessarily continue in the future. BlackRock undertakes no obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date of this document.
The Company is not an Authorised Person under the Financial Services and Markets Act 2000 and accordingly is not registered with the United Kingdoms' Financial Services Authority. The Company will therefore only be suitable for professional or experienced investors, or those who have taken financial advice. Regulatory requirements which may be deemed necessary for the protection of retail or inexperienced investors do not apply to listed funds. By investing in the Company, you will be deemed to be acknowledging that you are a professional or experienced investor, or have taken appropriate professional advice and accepted the reduced requirements accordingly. You are wholly responsible for ensuring that all aspects of the Company are acceptable to you. Investment in listed fund may involve special risks that could lead to a loss of all of a substantial portion of such investment. Unless you fully understand and accept the nature of this fund and the potential risks inherent in this fund, you should not invest in the Company. Further information in relation to the regulatory treatment of listed funds domiciled in Jersey may be found on the website of the Jersey Financial Services Commission and www.jersyfsc.org.
Opinions and estimates offered herein constitute the judgment of BlackRock and are subject to change. All opinions and estimates are based on assumptions, all of which are difficult to predict and many of which are beyond the control of BlackRock. In addition, any calculations used to generate the estimates were not prepared with a view towards public disclosure or compliance with any published guidelines. In preparing this document, BlackRock has relied upon and assumed, without independent verification, the accuracy and completeness of information provided by third parties. BlackRock believes that the information provided herein is reliable; however, it does not warrant its accuracy or completeness.
This is an original unpublished work protected under copyright laws of the United States and other countries. All Rights Reserved. Should publication occur, then the following notice shall apply: © 2010 by BlackRock. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of BlackRock.
Any dispute, action or other proceeding concerning thus document shall be adjudicated within the exclusive jurisdiction of the courts of England. All material contained in this document (including in this disclaimer) shall be governed by and construed in accordance with the laws of England and Wales.
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