Monthly Shareholder Report - August 2014

BH GLOBAL LIMITED

MONTHLY SHAREHOLDER REPORT:AUGUST 2014

YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT

Administrator:

Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust")

Joint Corporate Brokers:

J.P. Morgan Cazenove

Canaccord Genuity Ltd.

Listings:

London Stock Exchange

(Premium Listing)

NASDAQ Dubai - USD Class (Secondary Listing)

Bermuda Stock Exchange (Secondary Listing)

BH Global Limited ("BHG") is a closed-ended investment company, registered and incorporated in Guernsey on 25 February 2008 (Registration Number: 48555).

With effect from 1 September 2014, BHG changed its investment policy, such that it no longer invests in Brevan Howard Global Opportunities Master Fund Limited ("BHGO") but instead invests all its assets (net of short-term working capital) in Brevan Howard Multi-Strategy Master Fund Limited ("BHMS") a company also managed by the Manager.

Prior to 1 September 2014, BHGO invested all of its assets, net of cash retained for short-term working capital and efficient portfolio management, in investment funds of which one or more of the Brevan Howard group of affiliated entities is the manager or investment manager (the "Underlying Funds").

BHG was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 29 May 2008.

1. As at 29 August 2014 by BHG's administrator, Northern Trust.

Source: Underlying NAV data for the funds in which BHGO invested in prior to 1 September 2014 is provided by their respective administrators. BHG NAV and NAV per Share data is provided by BHG's administrator, Northern Trust. BHG NAV per Share % Monthly Change calculations are made by BHCM.

BHG NAV data is unaudited and net of all investment management fees and all other fees and expenses payable by BHG. NAV performance is provided for information purposes only. Shares in BHG do not necessarily trade at a price equal to the prevailing NAV per Share.

* Performance is calculated from a base NAV per Share of 10 in each currency. The opening NAV in May 2008 was 9.9 (after deduction of the IPO costs borne by BHG).

Data as at 29 August 2014.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

Unaudited Estimates as at 29 August 2014

Source: BHCM

* These estimates reflect the combined ASC 820 levels of the Underlying Funds, proportional to each of the Underlying Fund's weighting in BHGO's portfolio. The estimates are unaudited and have been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of Underlying Funds. The relative size of each category is subject to change.

Level 1: this represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: this represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets;

The information in this section has been provided to BHG by BHCM.

Monthly, quarterly and annual contribution (%) to the performance of BHG USD Shares (net of fees and expenses) by strategy group

Monthly, quarterly and annual figures are calculated by BHCM as at 29 August 2014, based on performance data for each period provided by BHG's administrator, Northern Trust. Figures rounded to two decimal places.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

Methodology and Definition of Monthly Contribution to Performance:

Attribution is approximate and has been derived by allocating each underlying trader book in each Underlying Fund to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected.

The above strategies are categorised as follows:

"Macro": multi-asset global markets, mainly directional (for BHG, the majority of risk in this category is in rates)

"Rates": developed interest rates markets

"FX": global FX forwards and options

"EMG": global emerging markets

"Equity": global equity markets including indices and other derivatives

"Commodity": liquid commodity futures and options

"Credit": corporate and asset-backed indices, bonds and CDS

"Systematic": rules-based futures trading

Fund allocations as at 29 August 2014* (allocations subject to change):

Source: BHCM; figures rounded to one decimal place.

* Inclusive of subscriptions\redemptions in Underlying Funds for 29 August 2014.

** Calculated using historical simulation based on a 1 day, 95% confidence interval.

Source: BHCM; figures rounded to the nearest whole number.

Monthly Performance Review for BHG

The NAV per share of BHG's USD shares appreciated by 0.05% and the NAV per share of GBP appreciated by 0.03% in August.

There were positive returns from four of the Underlying Funds, as detailed below.

Under the new investment policy of investing in BHMS (effective 1 September 2014), BHG will benefit from the direct investment portfolio, a part of the portfolio with direct allocations to individual traders. BHG continued to be active in its discount management activities buying circa $4.3m at an average discount of 9.4% in August.

* The USD currency class of each Underlying Fund is used as a proxy for the performance of each of the Underlying Funds; BHGO also invested in the GBP currency class of the Underlying Funds.

Source: Month-to-date ("MTD") performance data for the Underlying Funds is provided by their respective administrators. MTD performance data is net of all investment management fees and all other fees and expenses payable.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

Brevan Howard Master Fund Limited ("BHMF")

The NAV per share of BHMF Class Y USD Shares depreciated by 0.12% (net of fees) in August.

During the month, BHMF suffered some losses in USD interest rate trading and, to a lesser extent, in equity trading. These losses were mostly offset by gains in FX trading, rates trading in other currencies (including EUR) and, to a lesser extent, credit trading.

Brevan Howard Asia Master Fund Limited ("BHA")

The NAV per share of BHA Class X USD Shares depreciated by 0.09% (net of fees) in August.

In spite of a fairly active month of tactical trading, overall P&L was muted, with small gains in China FX trading offset by losses on volatility strategies on the Nikkei.

The NAV per Share of BHCC Class Y USD Shares depreciated by 0.97% (net of fees) in August. The majority of losses came from company specific investments in corporate strategies.

The NAV per Share of BHCS Class X USD Shares appreciated by 0.17% (net of fees) in August.

BHCS finished August modestly positive, with gains in oil and agricultural strategies and losses in natural gas.

The NAV per Share of BHST Class B USD Shares appreciated by 3.94% (net of fees) in August.

During the month, BHST made gains in all sectors with the exception of metal and energy futures.

Brevan Howard Emerging Markets Local Fixed Income Leveraged Master Fund Limited ("BEL")

The NAV per Share of BEL Class Y USD Shares appreciated by 0.11% (net of fees) in August.

During August, BEL kept basic positioning close to unchanged, with a small net long in FX and the net exposure to emerging markets interest rates remained slightly short. The interest rate positions registered small losses. The foreign exchange positions generated modest gains.

Brevan Howard Credit Value Master Fund Limited ("BHCV")

The NAV per Share of BHCV Class Y USD Shares appreciated by 0.31% (net of fees) in August.

In August, BHCV performance was driven by gains in mortgage- and asset-backed holdings. These gains were offset somewhat by losses from corporate positions. Losses were mostly in distressed and fundamental investments.

Manager's Market Review and Outlook

The information in this section has been provided to BHG by BHCM. 

Market Commentary

US

Growth firmed in August, but job gains slowed. Real GDP growth appears to be expanding in the middle two quarters of the year at about a 4% annualised clip. The second quarter will be flattered by a jump in healthcare outlays that more than unwinds the peculiar decline seen in the first quarter. The latest official second-quarter estimate of a 4.2% increase is expected to be revised up a few tenths to above 4.5% in the final release. In the current quarter, a brisk pace of business and residential investment point toward overall growth around 3.5%. Consumption outlays slowed a little during the summer, in part due to unseasonably cool summer weather. But the trajectory of retail sales looks sturdy and automobile sales in August surged to their highest level since January 2006. Consumer and business sentiment corroborate the hard data with most surveys at or near multi-year highs, including the closely watched purchasing managers indexes.

Meanwhile, the labour market fell shy of expectations in August with the smallest increase in payroll employment seen this year. The unemployment rate did tick down to 6.1% but its trend has levelled out in the last few months. However, at this point, there's little reason to think the soft numbers in August were anything more than the normal volatility in the monthly statistics.

Wage and price inflation remain muted. Core consumer price inflation slowed below a 2% annual rate in the last three months and the most recent information on average hourly earnings suggest only the most tentative of upward trends.

At the annual Jackson Hole conference, Fed Chair Yellen took the temperature of the labour market and teased out the implications for policy going forward. Yellen emphasized a nuanced approach to judging the degree of slack, with every dovish argument balanced by a hawkish one. With regard to policy, she argued for a pragmatic approach, which certainly contrasts with the dogmatically dovish stance sometimes ascribed to her by market participants.

EMU

The EMU economy continues to lose momentum in the third quarter, in part due to the escalation of the Ukrainian crisis. Both the European Commission's economic sentiment indicator and the Composite PMI fell noticeably in August. The drop in the PMI was fairly broad-based, with the Spain and Ireland Services PMI being the only exceptions. In particular, the loss of momentum is quite pronounced in Italy, from business to consumer surveys. German orders and industrial production rebounded in July, but surveys indicate that this is likely to be a temporary bounce. According to Eurostat's flash estimates, euro area HICP inflation ticked down to a new cycle low of 0.3% y/y in August, due to a further deceleration of energy prices, which was only partly offset by an uptick in core inflation.

In its September policy meeting, the ECB went 'all-in': not only did it cut the key official rates by 10bps to what is now firmly the lower bound, but it also pre-announced an ABS programme and a covered bond purchase programme which looks larger than expected. Although details are still lacking, what was revealed - the ABS programme is to include RMBS, purchases including existing stocks on top of newly issued securities - clearly exceeded most forecasts. The aim of the ECB is not only to add to the ECB's current credit easing action, but also to bring the ECB's balance sheet back to the levels of early 2012. This means a €1 trillion increase in the balance sheet from today's level. As to interest rates, ECB President Draghi was clear in saying that the ECB is now at the lower bound and no further 'technical' adjustment is possible. However, in the Q&A Draghi said clearly that, if "at the end" the current package of measures - TLTRO, rate cut, ABS and covered bond purchases programmes - are not effective in meeting the ECB inflation target, QE would follow. This adds to the decisively dovish bias of the ECB relative to the US Fed and the Bank of England. However the decisions were not unanimous and unconfirmed reports followed that the Deutsche Bundesbank opposed the measures approved in the meeting.

UK

The two most important pieces of economic news in the past few months are the growing disparity between record-high employment growth and record-weak wage growth and increasing signs that the housing market is losing momentum. Employment growth has been more than 3% over the past year, a pace not seen in 25 years. This employment growth has been accompanied by a sharp decline in unemployment, and a stable to slightly rising participation rate. But underlying wage growth has been very weak on the official data, at a record-low pace of less than 1%. Some other indicators do suggest upward wage pressure, notably surveys of recruitment firms, and surveys of the BoE's regional contacts. But these surveys are biased toward newly hired employees, and say less about the wage growth affecting existing employees. One analysis consistent with these findings of strong employment and weak wages is that there has been a significant increase in labour supply from younger workers facing less generous benefits, older workers facing less generous pensions, and EU workers facing high unemployment in their home countries. This has kept wage bargaining power very low. Productivity growth is still approximately zero, as 3% GDP growth has been matched by 3% employment growth. 3% GDP growth has been supported in equal measures by consumption and investment. Household income growth has supported most of the consumption growth (i.e. savings are no longer falling rapidly), but the income growth itself comes entirely from employment growth, as real wages are still slightly declining. A second recent development has been further of loss of momentum in the housing market.

The BoE may have inadvertently tightened mortgage supply more than it wanted to. The Mortgage Market Review, which recommended the introduction of loan-to-income caps and affordability caps, was not supposed to be binding, but banks appear to want to stay well inside the BoE's guidance. The fear of future property tax changes (for example, the so-called "mansion tax" and higher council tax bands) might also be a factor now that the general election is approaching. There are now signs of stagnating housing activity, which should lead to slowing or stagnating price gains ahead. London is more exposed, as prices have risen sharply relative to rest of UK and also due to the larger supply of new properties. Early indicators point to risk of outright London price falls in the months ahead. Given the importance of the housing recovery as a catalyst for overall recovery, a housing slowdown could result in a more broad-based growth slowdown in the quarters ahead from the strong pace seen recently. Such a slowdown is to some extent factored into the BoE's outlook, so some loss of momentum would not necessarily be a surprise. The BoE has acknowledged the weakness in wage growth and slowing in the housing market in its August Inflation Report, pointing to slightly later and slower lift-off in interest rates, probably in February, but with risks skewed towards further delays. A minority of two MPC members have voted for a hike already, but the majority wants to wait for more concrete signs of wage pressure.

Japan

In Japan, the consumption tax hike hit economic activity as real GDP growth fell 6.75% (annualised rate) in the second quarter, more than undoing the 6.1% annualised rate jump in the first quarter. Various surveys also indicate a slowdown, though for the most part they also point to a succeeding recovery. The Shoko-Chukin survey is back to only a ½ point below the run rate seen early in the year. Views on current conditions in the Economy Watchers survey haven't come back as far, although the index has clawed back most of its spring pothole. In contrast, the latest industrial production reading showed only a slight uptick. Inflation continues to hang on to its previous gains but evinces no further momentum. Western core inflation seasonally adjusted came in at 0.1% m/m for a third consecutive month. That is only slightly faster than what it was before the consumption tax hike. This is consistent with the path the Bank of Japan has laid out, but it will need Phillips-type curve effects to kick in strongly later in the year to propel inflation closer to the 2% benchmark. Given rather flat estimates for the Phillips curve around the world, that would appear to be rather optimistic. For its part, the BoJ stuck to the monetary easing put in place earlier. Consumer inflation expectations edged up in July, the first increase since February.

Prime Minister Abe recently completed a cabinet reshuffle. The reorganisation appears mostly aimed at solidifying his standing with the LDP. It is not expected that it will have any major implications for the path of third-arrow reforms. In particular, reform of the pension system to allow for broader equity investments appears still in place. Finance Minister Aso retained his post, suggesting that corporate tax cuts and the second-round consumption tax hike are still planned.

China

China activity data appear to have peaked in July, as the data moderated meaningfully in August, along with monetary and credit dynamics. In particular, the growth rate of industrial production fell from 9.0% y/y to 6.9% y/y, significantly undershooting the market consensus and the lowest since the end of 2008. The HSBC manufacturing PMI delivered a similar message, slipping from 51.7 in July to 50.2 in August. On the demand side, fixed asset investments and retail sales' dynamics slowed as well, although by less than industrial production. Imports contracted on a y/y basis, reflecting weaker domestic demand, while the pace of exports remained robust, albeit less than in July. Money growth slowed substantially, from 13.5% to 12.8%, a marked deceleration from the June peak (14.7% y/y), as did credit formation, although remaining faster than nominal GDP growth. Premier Li commented on this number and said that M2 growth year-to-date is still in line with the annual target, while the Government's focus is employment: the labour market, in his view, still holds up relatively well. Li also commented that China already has a significant stock of money, and thus should not rely on the Government issuing more money to boost growth. China recorded another large trade surplus of US$49.8bn in August, compared with its prior figure of US$47.3bn and a consensus of US$40bn. The average monthly trade balance in the first eight months of the year is US$25bn, which now sits at the high end of the previous estimate of US$20-25bn for 2014.

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