Third Point Offshore Investors
Limited (the "Company")
(a closed-ended investment company incorporated with limited
liability under the laws of Guernsey with registered number 47161)
28 April 2017
FULL YEAR Results
for the TWELVE months ended 31 DECEMBER
2016
Third Point Offshore Investors Limited (“TPOIL” or the
“Company”), the closed-end, London
listed event-driven, value-oriented hedge fund managed by Daniel S.
Loeb’s Third Point LLC (the “Investment Manager”) announces its
full year results for the twelve months ended 31 December 2016.
Financial Highlights (as at 31
December 2016, unless otherwise stated)
- Net Asset Value (“NAV”) growth in USD class of 6.1% and GBP
class of 5.6%
Ticker |
Tranche |
NAV
FY16 |
NAV
FY15 |
Return |
TPOU |
USD
Class $ |
$17.63 |
$16.62 |
6.1% |
TPOG |
GBP
Class £ |
£16.84 |
£15.95 |
5.6% |
- The Company’s NAV increased 5.2% to $879.2 million (FY15:$835.9 million)
- On 10 January 2017, an annual
distribution was declared equivalent to 4% of the NAV of the
Company in respect of the year to 31
December 2016, amounting to $0.71 per USD share and £0.62 per GBP share
Portfolio Performance of the Master
Fund
- The Investment Manager combined bottom up security selection
with a top down macroeconomic overlay throughout the year. The
combination afforded Third Point the ability to adjust exposures
opportunistically around key macroeconomic and political events
globally
- The net investment results for the year were driven by
contribution from most strategies and sectors in the portfolio.
Credit contributed the largest share of profits with modest losses
in structured credit greatly outweighed by gains in corporate and
sovereign credit
- Investments in the energy sector were the primary driver of
returns for the year in corporate credit. Within equities, strong
performance from investments in the financials and industrials
sectors countered negative attribution from two large healthcare
positions
Outlook
- The Investment Manager shifted the portfolio throughout 2016
and ended the year with more net exposure but less gross exposure
relative to the beginning of the year
- In the near term, the Investment Manager expects to see
accelerating growth in the U.S. and globally and fiscal stimulus in
the U.S. The combination could cause earnings to rise and a very
different investing environment. A reflationary market can create
favorable conditions for Third Point’s investment strategies
including event driven and value investing, risk arbitrage, and
activism. The Investment Manager has increased exposure to equities
across sectors and decreased investments in corporate and
structured credit
Marc Antoine Autheman, Chairman of Third Point Offshore
Investors Limited, commented: “I am pleased to report a solid
growth in NAV from Third Point Offshore Investors for 2016, with
the Investment Manager’s ability to allocate across both the
capital structure and strategies contributing to a positive return
in a volatile year.”
“Despite the positive NAV performance, the discount between NAV
and the share price for each class widened during the year. The
Board believes that this shift is driven primarily by investor
sentiment about market conditions. The Board has been proactive in
looking to address investor concerns, initiating a series of share
buybacks in February 2016 and we are
pleased to have been able to recently announce a dividend for
2016.
“Looking forward, the Investment Manager believes that a
reflationary market can create favorable conditions for Third
Point’s investment strategies including event driven and value
investing, risk arbitrage, and activism. As such, the Investment
Manager has increased exposure to equities across sectors and
decreased investments in corporate and structured credit as it
continues to look to identify compelling risk-adjusted
opportunities for investment across the capital structure.”
Enquiries:
Third
Point Offshore investors
Investor Relations |
+1 212 715 6707 |
FTI
Consulting
Ed Berry
Tom Blackwell |
+44 (0)20 3727 1046
+44 (0)20 3727 1051
|
|
|
Notes to Editors
TPOIL is a feeder fund that invests in Third Point Offshore Fund
Ltd. (the “Master Fund”), with the investment objective of
achieving uncorrelated, long term, attractive risk-adjusted
returns. The Company has two share classes which differ by
denomination (LSE: TPOU, TPOG).
Chairman’s Statement
I am pleased to present the Tenth Annual Report for Third Point
Offshore Investors (“the Company”) for the year ended 31 December 2016.
The Company was established as a closed-end investment company,
registered and incorporated in Guernsey on 19 July
2007. The Company invests its assets in Third Point Offshore
Master Fund L.P. (the “Master Partnership”) via Third Point
Offshore Fund, Ltd. (the “Master Fund”), which pursues an
opportunistic investment approach based on event-driven fundamental
value analysis across the capital structure. The Master Fund is
managed on a discretionary basis by Third Point LLC (“the
Investment Manager”).
The Company’s net asset value (the “NAV”) appreciated 6.1% for
the U.S. Dollar and 5.6% for the Sterling share classes,
respectively, in 2016. The performance was driven primarily by
positive returns in the Master Fund’s corporate and sovereign
credit positions. Gains were counterbalanced by losses in several
large equity positions in the healthcare sector. The ability to
allocate across the capital structure and across strategies is an
important characteristic of the Third Point investment
approach.
The Investment Manager combined bottom up security selection
with a top down macroeconomic overlay throughout the year. The
combination afforded Third Point the ability to adjust exposures
opportunistically around key macroeconomic and political events
globally. The Investment Manager shifted the investment portfolio
meaningfully following the U.S. Presidential election. The shift
resulted in an equity book with higher net exposure and a more
balanced portfolio across sectors. The Investment Manager is less
focused on credit opportunities in the current investment
environment. The Investment Manager increased exposure to risk
arbitrage transactions and generated positive returns from several
merger-related investments in 2016.
The discount between NAV and the share price for each class
widened substantially during the year despite positive NAV results.
We believe this shift was led primarily by investor sentiment about
market conditions and disappointment that the Company was unable to
issue a dividend for 2015 due to insufficient performance in the
Master Fund. To address investor concerns, we initiated a series of
share buybacks in February 2016
through the Master Partnership and were pleased to recently
announce a dividend for 2016. We will continue to abide by the
discount policy introduced in the Fourth Quarter of 2012 and
maintain a proactive approach to communications.
We believe in the importance of transparent communications with
shareholders and aim to be responsive to your inquiries. To this
end, the Company’s website (www.thirdpointpublic.com) publishes
monthly NAVs, a monthly shareholder report, a narrative quarterly
letter from the Investment Manager, and other relevant information
about the Company.
In corporate governance matters, the independent Board of
Directors and Audit Committee have met regularly.
My fellow Directors and I are honoured to serve our
shareholders.
Marc Antoine Autheman
27 April
2017
Directors’ Report
The Directors submit their Report together with the Company’s
Statements of Assets and Liabilities, Statements of Operations,
Statements of Changes in Net Assets, Statements of Cash Flows and
the related notes for the year ended 31
December 2016, “Audited Financial Statements”. These Audited
Financial Statements have been properly prepared, in accordance
with accounting principles generally accepted in the United States of America, any relevant
enactment for the time being in force, and are in agreement with
the accounting records and have been properly prepared in all
material aspects. The Audited Financial Statements give a true and
fair view of the financial position of the Company.
The Company
The Company was incorporated in Guernsey on 19 June
2007 as an authorised closed-ended investment scheme and was
admitted to a secondary listing (Chapter 14) on the Official List
of the London Stock Exchange on 23 July
2007. The proceeds from the initial issue of shares on
listing amounted to approximately US$523
million. Following changes to the Listing Rules on
6 April 2010, the secondary listing
became a standard listing.
The Company is a member of the Association of Investment
Companies (“AIC”).
Investment Objective and Policy
The Company’s investment objective is to provide its
Shareholders with consistent long term capital appreciation
utilising the investment skills of Third Point LLC (the “Investment
Manager”) through investment of all of its capital (net of short
term working capital requirements) in Class E Shares of Third Point
Offshore Fund, Ltd (the “Master Fund”), an exempted company formed
under the laws of the Cayman
Islands on 21 October
1996.
The Master Fund is a limited partner of Third Point Offshore
Master Fund L.P. (the “Master Partnership”), an exempted limited
partnership organised under the laws of the Cayman Islands, of which Third Point Advisors
II L.L.C., an affiliate of the Investment Manager, is the general
partner. Third Point LLC is the Investment Manager to the Company,
the Master Fund and the Master Partnership. The Master Fund and the
Master Partnership have the same investment objectives, investment
strategies and investment restrictions.
The Master Fund and Master Partnership’s investment objective is
to seek to generate consistent long term capital appreciation, by
using an event driven, bottom-up, fundamental approach to evaluate
various types of securities throughout companies’ capital
structures. The Investment Manager’s implementation of the Master
Fund and Master Partnership’s investment policy is the main driver
of the Company’s performance.
The Investment Manager’s fundamental approach to investing
begins with analysing a company’s financial performance, its
management and competitive advantages, its position within its
industry and the overall economy. This analysis is performed on
historical and current data with the ultimate goal of producing a
set of projected financial results for the company. Once the
projections are established, the Investment Manager compares the
current valuation of the company in question relative to its
historical valuation range, the valuation range of its peers and
the overall market in general to determine whether the markets are
mis-pricing the company. The Investment Manager ultimately invests
in situations where it believes mis-pricing exists because this
fundamental analysis indicates that such a disconnection will
correct itself over the long term.
The Investment Manager’s bottom-up approach attempts to identify
individual companies that would make attractive investment targets
based on their growth and profitability characteristics. This
approach differs from a top-down methodology which first evaluates
macro-economic, sector, industry or geographic factors to select
the best sectors or industries for investment.
The Investment Manager seeks to identify Event Driven situations
in which it can take either a long or short investment position
where it can identify a near or long-term catalyst that would
unlock value.
Results and Dividends
The results for the year are set out in the Statements of
Operations. Except in unusual circumstances, it is anticipated that
the Board of Directors of the Company (the “Board”), following
discussions with the Investment Manager, will declare an annual
cash dividend equivalent to 4-5% of the Net Asset Value (“NAV”) of
the Company, to the extent that the positive NAV performance of the
Company is sufficient to support such dividends. There were no
distributions declared during the year (31
December 2015: $Nil). On 10 January
2017, an annual distribution was declared equivalent to 4%
of the NAV of the Company in respect of the year to 31 December 2016, amounting to $0.71 per USD share and £0.62 per GBP share
(31 December 2015: $Nil) and paid on
14 February 2017.
Share Capital
Share Capital Conversions took place during the year ended
31 December 2016. A summary and the
number of shares in issue at the year-end are disclosed in Note 6
to the Audited Financial Statements.
Key performance indicators
(“KPI’s”)
At each Board meeting, the Board considers a number of
performance measures to assess the Company’s success in achieving
its objectives. Below are the main KPI’s which have been identified
by the Board for determining the progress of the Company:
• Net asset value;
• Share price; and
• Ongoing charges.
Directors
The Directors of the Company during the year and to the date of
this report are as listed on this Annual Report.
Directors’ Interests
Mr. Targoff holds the position of Chief Operating Officer,
Partner and General Counsel of Third Point LLC.
Pursuant to an instrument of indemnity entered into between the
Company and each Director, the Company has undertaken, subject to
certain limitations, to indemnify each Director out of the assets
and profits of the Company against all costs, charges, losses,
damages, expenses and liabilities arising out of any claims made
against them in connection with the performance of their duties as
a Director of the Company.
Christopher Legge and
Keith Dorrian held 4,500 and
2,500 U.S. Dollar shares respectively
as at 31 December 2016 (31 December 2015: Nil). No other Directors held
shares in the Company during the year.
Corporate Governance Policy
The Board has considered the principles and recommendations of
the Association of Investment Companies Code of Corporate
Governance (“AIC Code”) by reference to the Association of
Investment Companies Corporate Governance Guide for Investment
Companies (“AIC Guide”). The AIC Code, as explained by the AIC
Guide, addresses all the principles set out in the UK Corporate
Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance.
The Board has determined that reporting against the principles
and recommendations of the AIC Code, and by reference to the AIC
Guide (which incorporates the UK Corporate Governance Code), will
provide better information to Shareholders. The Company has
complied with all the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as
set out below.
The UK Corporate Governance Code includes provisions relating
to:
• the role of the chief executive;
• executive directors’ remuneration; and
• the need for an internal audit function.
For the reasons set out in the AIC Guide, the Board considers
these provisions are not relevant to the position of the Company,
being an externally advised investment company with no executive
directors or employees. The Company has therefore not reported
further in respect of these provisions.
The AIC Code provides a “comply or explain” code of corporate
governance designed especially for the needs of investment
companies. The AIC published the code of corporate governance and
the Company has reviewed its compliance with these standards. The
UK Financial Reporting Council (“FRC”) has confirmed that so far as
investment companies are concerned it considers that companies
which comply with the AIC Code will be treated as meeting their
obligations under the UK Corporate Governance Code (“The UK Code”)
and Section 9.8.6 of the Listing Rules. The AIC Code is publicly
available at:
http://www.theaic.co.uk/sites/default/files/hidden-files/AICCodeofCorporateGovernanceJUL16_0.pdf
The Company does not have employees, hence no whistle-blowing
policy is necessary. However, the Directors have satisfied
themselves that the Company’s service providers have appropriate
whistleblowing policies and procedures and confirmation has been
sought from the service providers that nothing has arisen under
those policies and procedures which should be brought to the
attention of the Board. The UK Code is publicly available at:
https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf
The Code of Corporate Governance (the “Guernsey Code”) provides
a framework that applies to all entities licensed by the Guernsey
Financial Services Commission (“GFSC”) or which are registered or
authorised as a collective investment scheme. Companies reporting
against the UK Code or the AIC Code are deemed to comply with the
Guernsey Code. It is the Company’s policy to comply with the AIC
Code.
The Board confirms that throughout the period covered in the
financial statements, the Company complied with the Guernsey Code
issued by the GFSC, to the extent it was applicable based upon its
legal and operating structure and its nature, scale and
complexity.
Board Structure
The Board currently consists of five non-executive Directors. As
the Chairman of the Board is an independent non-executive, the
Board considers it unnecessary to appoint a senior independent
Director.
Name |
Position |
Independent |
Date
Appointed |
Marc Antoine
Autheman |
Non-Executive
Chairman |
Yes |
21 June
2007 |
Christopher Legge |
Non-Executive
Director |
Yes |
19 June
2007 |
Keith Dorrian |
Non-Executive
Director |
Yes |
19 June
2007 |
Christopher Fish |
Non-Executive
Director |
Yes |
19 June
2007 |
Joshua L Targoff |
Non-Executive
Director |
No |
29 May
2009 |
One third of the Directors retire by rotation at every Annual
General Meeting (“AGM”) with the exception of Mr. J Targoff, who as
the Chief Operating Officer, General Counsel and Partner of the
Investment Manager, is not considered independent and will
therefore be subject to annual re-election by Shareholders. All
other Directors are considered by the Board to be independent of
the Company’s Investment Manager. Any Directors appointed to the
Board since the previous AGM also retire and stand for re-election.
The Independent Directors take the lead in any discussions relating
to the appointment or re-appointment of directors. The Independent
Directors consider it important that the Board includes a
representative of the Investment Manager.
The Board meets at least four times a year and in addition there
is regular contact between the Board, the Investment Manager and
Northern Trust International Fund Administration Services
(Guernsey) Limited (the
“Administrator”), and the Board requires to be supplied in a timely
manner with information by the Investment Manager, the
Administrator, Northern Trust International Fund Administration
Services (Guernsey) Limited (the
“Company Secretary”) and other advisors in a form and of a quality
appropriate to enable it to discharge its duties. The Board,
excluding Mr. Targoff, regularly reviews the performance of the
Investment Manager and the Master Fund to ensure that performance
is satisfactory and in accordance with the terms and conditions of
the relative appointments and Prospectus. It carries this review
out through consideration of a number of objective and subjective
criteria and through a review of the terms and conditions of the
advisors’ appointment with the aim of evaluating performance,
identifying any weaknesses and ensuring value for money for the
Company’s Shareholders.
New Directors will receive an induction from the Investment
Manager on joining the Board, and all Directors undertake relevant
training as necessary.
The Company has no executive directors or employees. All
matters, including strategy, investment and dividend policies,
gearing and corporate governance procedures are reserved for
approval by the Board of Directors. The Board receives full
information on the Company’s investment performance, assets,
liabilities and other relevant information in advance of Board
meetings.
Board Tenure and Succession
planning
The Board notes the AIC Code and UK Code suggest it would be
good practice for all Directors to be offered for re-election at
regular intervals subject to continued satisfactory performance. In
accordance with the Company’s articles of incorporation, at least
one third of the Independent Directors and Mr. Targoff (treated for
the purposes of the AIC Code as a Non-Independent Director) will
retire at each Annual General Meeting (Principle 3 - AIC Code). The
Company considers that putting forward all Independent Directors
for re-election more frequently would not be in the best interests
of Shareholders.
The Board believes that benefits to Shareholders arise from the
Directors’ long-term knowledge and experience of the Company and
its management including their ongoing ability to independently
review the performance of the Investment Manager.
The majority of the Board have been in office since the company
was incorporated in 2007 and have served longer than nine years.
The Board however, takes the view that independence is not
necessarily compromised by the length of tenure on the Board and
experience can add significantly to the Board’s strength.
The Directors undertake an annual evaluation of the Board’s
performance and continuing independence and during this evaluation
(which includes a review of the diversity of experience within the
Board to ensure that it remains appropriate) all Directors are
asked to confirm their future intentions. At the recent review Mr.
Fish indicated his intention to retire from the Board at the 2017
AGM. The Board has robust procedures for the identification of
prospective Non-Executive Director candidates, and as part of the
selection process, due regard is paid to the recommendations for
board diversity, however, ability and experience will be the prime
considerations. During the last 6 months the Board has sought
nominations from the Directors and from other relevant parties. A
shortlist of well qualified candidates was produced who were then
interviewed by an ad-hoc committee of independent Directors. The
Board expects to be in a position to appoint a successor to Mr.
Fish following approval of these Audited Financial Statements.
Directors’ Biographies
Marc Antoine Autheman
Marc Antoine Autheman, is a resident of France. He has over 38 years of experience in
the public and private finance sectors. Mr. Autheman is currently
Chairman of Euroclear S.A. and Chairman of Cube Infrastructure
Fund. He worked in the French Treasury for ten years from 1978 to
1988, prior to joining the Minister of Finance’s private office,
Minister Beregovoy, as advisor for monetary and financial affairs
between 1988 and 1993. From 1993 to 1997, he worked as Executive
Director for France for the
International Monetary Fund and the World Bank and chaired the
audit committee of the World Bank during this time. From 1997 to
2004, he worked in a number of roles at Credit Agricole S.A.
(‘‘CASA’’), mainly as CEO of Credit Agricole Indosuez. He holds
Master’s degrees in Law and Economics from the University of
Paris.
Keith
Dorrian
Keith Dorrian, is a Guernsey resident and has over 43 years’
experience in the offshore finance industry. Joining Manufacturers
Hanover in 1973 he moved to First National Bank of Chicago in 1984 where he was appointed Vice
President and Company Secretary. In 1989 he joined ANZ Bank (Guernsey) where, as a Director of the Bank and
Fund Management company, he was closely involved in the banking and
fund management services of the Group. He took up the position of
Manager Corporate Clients in Bank of Bermuda Guernsey in 2000 and
was appointed local Head of Global Fund Services and Managing
Director of the Guernsey Bank’s Fund Administration company
Management International (Guernsey) Limited in Guernsey in 2001, retiring on 31 December 2003. He is currently a member of the
Guernsey Investment Fund Association, the Institute of Financial
Services, the Institute of Directors and is a Director of a number
of funds and fund management companies and holds the Institute of
Directors Diploma in Company Direction. Mr. Dorrian was elected a
Fellow of the Institute of Directors.
Christopher
Fish
Christopher Fish, is Guernsey resident and is a director of a UK
listed fund as well as three Guernsey based financial companies. During the
past 42 years he has held executive positions as a director of the
Royal Bank of Canada (Channel Islands) Limited and as the Americas
Offshore Head of Coutts where he was responsible for the
Bahamas, Bermuda, Cayman and Uruguay offices. In 1997 he was appointed the
Senior Client Partner for Coutts Offshore before taking up the
position of Managing Director of Close International Private
Banking in 1999 from where he retired in 2005.
Christopher
Legge
Christopher Legge, is a
Guernsey resident and worked for
Ernst & Young in Guernsey from
1983 to 2003. Having joined the firm as an audit manager in 1983,
he was appointed a partner in 1986 and managing partner in 1998.
From 1990 to 1998, he was head of Audit and Accountancy and was
responsible for the audits of a number of insurance, banking,
investment fund and financial services clients. He also had
responsibility for the firm’s training, quality control and
compliance functions. He was appointed managing partner of Ernst
& Young for the Channel
Islands region in 2000. Since his retirement from Ernst
& Young in 2003, Mr. Legge has held a number of non-executive
directorships in the financial sector. He is an FCA and holds a BA
(Hons) in Economics from the University of Manchester.
Joshua L.
Targoff
Joshua L. Targoff has been the
Chief Operating Officer of the Investment Manager since
May 2009. He joined as General
Counsel in May 2008. Previously, Mr.
Targoff was the General Counsel of the Investment Banking Division
of Jefferies & Co. Mr. Targoff spent seven years doing M &
A transactional work at Debevoise & Plimpton LLP. Mr. Targoff
graduated with a J.D. from Yale Law School, and holds a B.A. from
Brown University. In 2012, Mr. Targoff
was made a Partner of the Investment Manager.
Meeting Attendance Records
The table below lists Directors’ attendance at meetings during
the year, to the date of this report.
|
Scheduled
Board |
Audit
Committee |
|
Meetings |
Meetings |
|
Attended |
Attended |
Marc Antoine
Autheman |
4 of
4 |
3 of
3 |
Christopher Legge |
4 of
4 |
3 of
3 |
Keith Dorrian |
4 of
4 |
3 of
3 |
Christopher Fish |
4 of
4 |
3 of
3 |
Joshua L
Targoff1,2 |
3 of
4 |
N/A |
1 Mr. Targoff is not a member of the
Audit Committee.
2 Mr. Targoff does not attend
Meetings as a director where recommendations from the Investment
Manager are under consideration.
Committees of the Board
The AIC Code requires the Company to appoint nomination,
remuneration and management engagement committees. The Board has
not deemed this necessary as, being comprised wholly of
non-executive Directors, the whole Board considers these matters.
The Directors have included a Directors’ Remuneration Report on
these Financial Statements.
Following the “Women on Boards” review conducted by Lord Davies’
of Abersoch in February 2011, the
Board has examined Lord Davies’ recommendations and noted that it
was consistently reviewing its policy and future appointments to
the Board would continue to be based on the individual’s skills and
experience regardless of gender.
The Investment Manager has wide experience in managing and
administering fund vehicles and has access to extensive investment
management resources. The Board considers that the continued
appointment of the Investment Manager on the terms agreed would be
in the interests of the Company’s Shareholders as a whole.
Audit Committee
The Company’s Audit Committee conducts formal meetings at least
three times a year for the purpose, amongst others, of considering
the appointment, independence, effectiveness of the audit and
remuneration of the auditors and to review and recommend the annual
statutory accounts and interim report to the Board of Directors.
Full Details of its functions and activities are set out in the
Report of the Audit Committee on these Financial Statements.
Directors’ Duties and
Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
• Statutory obligations and public disclosure;
• Strategic matters and financial reporting;
• Board composition and accountability to Shareholders;
• Risk assessment and management, including reporting,
compliance, monitoring, governance and control; and
• Other matters having material effects on the Company.
These Reserved Powers of the Board have been adopted by the
Directors to clearly demonstrate the seriousness with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.
The Directors are responsible for the overall management and
direction of the affairs of the Company. The Company has no
Executive Directors or employees. The Company invests all of its
assets in shares of the Master Fund and Third Point LLC acts as
Investment Manager to the Master Fund and is responsible for the
discretionary investment management of the Master Fund’s investment
portfolio under the terms of the Master Fund Prospectus.
Northern Trust International Fund Administration Services
(Guernsey) Limited (“NT”) acts as
Administrator and Company Secretary and is responsible to the Board
under the terms of the Administration Agreement. The Administrator
is also responsible to the Board for ensuring compliance with the
Rules and Regulations of The Companies (Guernsey) Law, London Stock Exchange listing
requirements and observation of the Reserved Powers of the Board
and in this respect the Board receives detailed quarterly
reports.
The Directors have access to the advice and services of the
Company Secretary who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with applicable
rules and regulations of The Companies (Guernsey) Law, the GFSC and the London Stock
Exchange. Individual Directors may, at the expense of the Company,
seek independent professional advice on any matter that concerns
them in the furtherance of their duties. The Company maintains
appropriate Directors’ and Officers’ liability insurance in respect
of legal action against its Directors on an ongoing basis and the
Company has maintained appropriate Directors’ Liability Insurance
cover throughout the year.
The Board is also responsible for safeguarding the assets of the
Company and for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Internal Control and Financial
Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company’s system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss.
The Directors review all controls including operations,
compliance and risk management. The key procedures which have been
established to provide internal control are:
• Investment advisory services are provided by the Investment
Manager. The Board is responsible for setting the overall
investment policy, ensuring compliance with the Company’s
Investment Strategy and monitors the action of the Investment
Manager and Master Fund at regular Board meetings. The Board has
also delegated administration and company secretarial services to
NT; however it retains accountability for all functions it has
delegated.
• The Board considers the process for identifying, evaluating
and managing any significant risks faced by the Company on an
on-going basis. It ensures that effective controls are in place to
mitigate these risks and that a satisfactory compliance regime
exists to ensure all local and international laws and regulations
are upheld. Particular attention has been given to the
effectiveness of controls to monitor liquidity risk, asset values,
counterparty exposure and credit availability.
• The Board clearly define the duties and responsibilities of
their agents and advisors and appointments are made by the Board
after due and careful consideration. The Board monitors the ongoing
performance of such agents and advisors.
• The Investment Manager and NT maintain their own systems of
internal control, on which they report to the Board. The Company,
in common with other investment companies, does not have an
internal audit function. The Audit Committee has considered the
need for an internal audit function, but because of the internal
control systems in place at the Investment Manager and NT, has
decided it appropriate to place reliance on their systems and
internal control procedures.
• The systems are designed to ensure effectiveness and efficient
operation, internal control and compliance with laws and
regulations. In establishing the systems of internal control,
regard is paid to the materiality of relevant risks, the likelihood
of costs being incurred and costs of control. It follows therefore
that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material
misstatement or loss.
Board Performance
The Board and Audit Committee undertake a formal annual
evaluation of their own performance and that of their committees
and individual Directors. In order to review their effectiveness,
the Board and Audit Committee carry out a process of formal
self-appraisal. The Directors and Committee consider how the Board
and Audit Committee functions as a whole and also review the
individual performance of its members. This process is conducted by
the respective Chairman reviewing individually with each of the
Directors and members of the Committee their performance,
contribution and commitment to the Company. The performance of the
Chairman is evaluated by the other independent Directors.
Management of Principal Risks and
Uncertainties
As noted in the Statement of Directors’ Responsibilities in
respect of the Audited Financial Statements, the Directors are
required to provide a description of the principal risks and
uncertainties facing the Company. The Directors have considered the
risks and uncertainties facing the Company and have prepared and
review regularly a risk matrix which documents the significant
risks faced by the Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Financial
Statements and is reviewed by the Board and is in accordance with
the Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.
This document considers the following information:
• Identifying and reporting changes in the risk environment;
• Identifying and reporting changes in the operational
controls;
• Identifying and reporting on the effectiveness of controls and
remediation of errors arising; and
• Reviewing the risks faced by the Company and the controls in
place to address those risks.
The Directors have acknowledged they are responsible for
establishing and maintaining the Company’s system of internal
control and reviewing its effectiveness by focusing on four key
areas:
• Consideration of the investment advisory services provided by
the Investment Manager;
• Consideration of the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis;
• Clarity around the duties and responsibilities of the agents
and advisors engaged by the Directors; and
• Reliance on the Investment Manager and Administrator
maintaining their own systems of internal controls.
Further discussion on Internal Control is documented in the
Directors’ Report under “Internal Control and Financial
Reporting”.
The main risks and uncertainties that the Directors consider to
apply to the Company are as follows:
• Underlying investment performance of the Master Fund. To
mitigate this risk the Directors receive regular updates from the
Investment Manager on the performance of the Master Fund. The Board
reviews quarterly performance updates on the Master Fund and has
access to the Investment Manager on any potential question
raised;
• Concentration of Investor Base. The Directors receive
quarterly investor reports from Jefferies International Limited
(“Corporate Broker”) and there is regular communication between the
Directors and Broker to identify potential significant changes in
the shareholder base;
• Discount/Premium to the NAV. The Investment Manager, Corporate
Broker and, when considered necessary, the Board of Directors,
maintain regular contact with the significant Shareholders in the
Company. As part of the ongoing process to seek to narrow the
discount to NAV per Share at which the Shares are traded, the
Directors introduced an annual dividend policy and a share
repurchase programme which is outlined in Note 6. Under the
dividend policy it was anticipated that the Company would pay a
cash dividend of 4-5% of NAV to the extent that the positive NAV
performance of the Company would support such a dividend and absent
other, exigent circumstances relating to the Investment Manager
and/or otherwise. There was no dividend declared during the year
ended 31 December 2016. An annual
distribution equivalent to 4% of the NAV of the Company was
declared on 10 January 2017 amounting
to $35,416,482 (31 December 2015: $Nil) and paid on 14 February 2017. The Board monitors the
discount/premium to the NAV on a regular basis and continually
maintains regular contact with significant Shareholders and the
Investment Manager when necessary.
• Performance of the Investment Manager. The Directors review
the performance of the Investment Manager on an annual basis and
Board representatives conduct annual visits to the Investment
Manager;
• Failure of appointed service providers to the Company. The
Directors conduct a formal review of each service provider annually
in addition to receiving regular updates from each service provider
and ensuring that there is ongoing communication between the Board
and the various service providers to the Company;
• Financial Risk. The Board employs independent administrators
to prepare the Financial Statements of the Company and meets with
the independent auditors at least twice a year to discuss all
financial matters including the appropriateness of the accounting
policies.
• Liquidity Risk. Shares of the Master Fund may be redeemed
quarterly on 60 days’ prior written notice or at other times with
the consent of the Master Fund’s Board of Directors in order to pay
Company expenses. The majority of the investments held by the
Master Fund are held in cash and securities with quoted prices
available in active markets/exchanges.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, published by the Financial Reporting Council in
September 2014 (“The Code”), the
Directors have assessed the prospects of the Company over the three
year period to 31 December 2019. The
Directors consider that three years is an appropriate period based
on a review of the Company’s investment horizon, anticipated cash
flows, management arrangements as well as the liquidity of the
Company’s investment in the Master Fund.
The investment objective of the Company is to invest all of its
investable capital, net of short-term working capital requirements,
in Class E Shares of Third Point Offshore Fund Limited (the “Master
Fund”). The Company’s performance and operations therefore depend
upon the performance of the Master Fund and the Directors in
assessing the viability of the Company pay particular attention to
the risks facing the Master Fund. The Investment Manager’s Review
sets out details of the Company’s financial performance, and
outlook.
In its assessment of the viability of the Company, the Directors
have considered each of the Company’s principal risks and
uncertainties as well as the internal control and financial
reporting processes detailed above and in particular the underlying
investment performance of the Master Fund and share price discount
to NAV.
The Directors acknowledge the two year notice period of the
Investment Manager serving notice under the Management Agreement.
To mitigate against this risk, the Directors meet regularly with
the Investment Manager to review the Company’s performance, and
closely monitor the relationship with the Investment Manager. The
Directors confirm their belief that the Company will remain viable
for the period to 31 December
2019.
Going Concern
During 2016, the Directors have carried out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or
liquidity. The Directors believe that the Company is well placed to
manage its business risks successfully, having taken into account
the current economic outlook.
The Directors, having considered the above risks and reviewed
ongoing budgeted expenses, have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due.
After making enquiries and given the nature of the Company and
its investment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing these
Audited Financial Statements. The Master Fund Shares are liquid and
can be converted to cash to meet liabilities as they fall due.
After due consideration, the Directors consider that the Company is
able to continue for the foreseeable future.
Significant Events During The Year
There were no significant events during the year.
Relations with Shareholders
The Board welcomes Shareholders’ views and places great
importance on communication with its Shareholders. The Board
receives regular reports on the views of shareholders and the
Chairman and other Directors are available to meet shareholders if
required. Shareholders who wish to communicate with the Board
should, in the first instance contact the Administrator, whose
contact details can be found on the Company’s website. The Annual
General Meeting of the Company provides a forum for shareholders to
meet and discuss issues with the Directors of the Company. The
ninth Annual General Meeting was held on 22
June 2016 with all proposed resolutions being passed by the
Shareholders.
Foreign Account Tax Compliance Act and
International Tax Reporting
The Foreign Account Tax Compliance Act (“FATCA”) legislation is
aimed at determining the ownership of US assets in foreign accounts
and improving US tax compliance with respect to those assets. On
13 December 2013, The States of
Guernsey signed an
intergovernmental agreement (“IGA”) with US Treasury in order to
facilitate the requirements under FATCA. The US-Guernsey IGA came
into effect on 30 June 2014. In
accordance with FATCA, the Company has registered with the US
Internal Revenue Services (“IRS”) as a Guernsey reporting Foreign Financial
Institution (“FFI”) and has received a Global Intermediary
Identification Number (“GIIN”) which can be found on the IRS FFI
list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into effect on
1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve international tax
compliance that had previously applied in respect of 2014 and
2015.
Significant Shareholdings
As at 17 April 2017, the Company
have been notified that the following had significant shareholdings
in excess of 5% in the Company:
|
Total Shares
Held |
% Holdings in
Class |
Significant Shareholders |
|
|
US Dollar
Shares |
|
|
Vidacos Nominees Limited |
10,397,552 |
21.87% |
Goldman Sachs Securities (Nominees)
Limited |
10,027,304 |
21.09% |
HSBC Global Custody Nominee
(UK) |
3,311,542 |
6.97% |
Nortrust Nominees Limited |
2,960,486 |
6.23% |
Lynchwood Nominees Limited |
2,854,534 |
6.00% |
Sterling
Shares |
|
|
Vidacos Nominees Limited |
390,662 |
19.26% |
HSBC Global Custody Nominee
(UK) |
251,428 |
12.67% |
Nortrust Nominees Limited |
201,598 |
10.16% |
Alliance Trust Savings Nominees |
165,212 |
8.33% |
Hargreaves Lansdown (Nominees) |
124,485 |
6.27% |
The Bank of New York Nominees
Limited |
116,024 |
5.85% |
Lawshare Nominees Limited |
99,593 |
5.02% |
The Directors confirm to the best of their knowledge:-
• there is no relevant audit information of which the Company’s
Auditor is unaware of, and each Director has taken steps he ought
to have taken as a Director to make himself aware of any relevant
information and to establish that the Company’s Auditor is aware of
that Information;
• these Annual Report and Audited Financial Statements have been
prepared in accordance with accounting principles generally
accepted in the United States of
America and give a true and fair view of the financial
position of the Company;
• these Annual Report and Audited Financial Statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for the shareholder to assess the Company’s
performance, business model and strategy; and
• these Annual Report and Audited Financial Statements include
information detailed in the Directors’ Report, the Investment
Manager’s Review and Notes to the Audited Financial Statements,
which provide a fair review of the information required by:-
a) DTR 4.1.8 of the Disclosure and
Transparency Rules (“DTR”), being a fair review of the Company
business and a description of the principal risks and uncertainties
facing the Company; and
b) DTR 4.1.11 of
the DTR, being an indication of important events that have occurred
since the ending of the financial year and the likely future
development of the Company.
Signed on behalf of the Board by:
Marc Antoine Autheman
Chairman
Christopher
Legge
Director
27 April 2017
Disclosure of Directorships in Public
Listed Companies
The following summarises the Directors’ directorships in public
companies:
Christopher Legge
Ashmore Global Opportunities Limited |
London |
John Laing Environmental Assets
Group Limited |
London |
Sherborne Investors (Guernsey) B
Limited |
London |
TwentyFour Select Monthly Income
Fund Limited |
London |
Keith
Dorrian
Keith Dorrian
AB Alternative Strategies PCC Limited |
Channel Islands |
AB International Fund PCC
Limited |
Channel Islands |
DW Catalyst Fund Limited |
London |
IIAB PCC Limited |
Channel Islands |
MasterCapital Fund Limited |
Ireland |
Christopher Fish
Boussard & Gavaudan Holding Limited |
Euronext and London |
Statement of Directors’
Responsibilities in Respect of the Audited Financial Statements
The Directors are responsible for preparing the Audited
Financial Statements in accordance with applicable Guernsey Law and
generally accepted accounting principles. Guernsey Company Law
requires the Directors to prepare Financial Statements for each
financial year which give a true and fair view of the state of
affairs of the Company and of the net income or expense of the
Company for that year.
In preparing these Audited Financial Statements the Directors
should:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether the applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the Audited Financial Statements; and
• prepare the Audited Financial Statements on a going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Audited Financial Statements comply with The Companies
(Guernsey) Law, 2008. They are
also responsible for the system of internal controls, safeguarding
the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors have responsibility to confirm that:
• there is no relevant audit information of which the Company’s
Auditor is unaware of, and each Director has taken all the steps he
ought to have taken as a Director to make himself aware of any
relevant information and to establish that the Company’s Auditor is
aware of that information; • these Annual Report and Audited
Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and give a true
and fair view of the financial position of the Company;
• these Annual Report and Audited Financial Statements, taken as
a whole, are fair, balanced and understandable and provide
information necessary for the shareholder to assess the Company’s
performance, business model and strategy; and
• these Annual Report and Audited Financial Statements include
information detailed in the Directors’ Report, the Investment
Manager’s Review and Notes to the Audited Financial Statements,
which provide a fair review of the information required by:-
a) DTR 4.1.8 of the Disclosure and
Transparency Rules (“DTR”), being a fair review of the Company
business and a description of the principal risks and uncertainties
facing the Company; and
b) DTR 4.1.11 of the DTR, being an indication of
important events that have occurred since the ending of the
financial year and the likely future development of the
Company.
Signed on behalf of the Board by:
Marc Antoine Autheman
Chairman
Christopher Legge
Director
27 April 2017
Directors’ Remuneration Report
Introduction
The Board has prepared this report as part of its framework for
corporate governance which, as described in the Directors’ Report,
enables the Company to comply with the main requirements of the UK
Corporate Governance Code published by the Financial Reporting
Council.
An ordinary resolution for the approval of this report will be
put to the shareholders at the forthcoming Annual General
Meeting.
Remuneration policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors’ remuneration. No advice or services were
provided by any external person in respect of its consideration of
the Directors’ remuneration.
The Company’s policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company’s
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate Directors of a quality
required to run the Company successfully. The Chairman of the Board
is paid a higher fee in recognition of his additional
responsibilities, as is the Chairman of the Audit Committee. The
policy is to review fee rates periodically, although such a review
will not necessarily result in any changes to the rates, and
account is taken of fees paid to Directors of comparable
companies.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors.
No Director has a service contract with the Company but each of
the Directors is appointed by a letter of appointment which sets
out the main terms of their appointment. Director appointments can
also be terminated in accordance with the Articles. Should
shareholders vote against a Director standing for re-election, the
Director affected will not be entitled to any compensation.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. No other remuneration or
compensation was paid or payable by the Company during the year to
any of the Directors apart from the reimbursement of allowable
expenses.
Directors’ fees
Due to an inflationary rise since the last director fee increase
on 6 June 2014, it was resolved to
approve the following director fee increases with effect from
1 January 2017:
Marc Antoine Autheman – £63,000 (increase of £3,000)
Chris Legge – £46,000 (increase
of £2,000)
Keith Dorrian – £38,000 (increase
of £2,000)
Chris Fish – £38,000 (increase of
£2,000)
The fees payable by the Company in respect of each of the
Directors who served during 2016 and 2015, were as follows:
|
2016 |
2015 |
|
£ |
£ |
Marc Antoine Autheman
(Chairman) |
60,000 |
60,000 |
Christopher F L Legge (Audit
Committee Chairman) |
44,000 |
44,000 |
Keith Dorrian |
36,000 |
36,000 |
Christopher N Fish |
36,000 |
36,000 |
Joshua L Targoff * |
– |
– |
Total |
176,000 |
176,000 |
|
|
|
USD equivalent |
US$228,783 |
US$267,271 |
*As a non-independent Director and Partner of the Investment
Manager Joshua L Targoff waived his Directors fee.
Performance table
The table details the share price returns over the year.
Signed on behalf of the Board by:
Marc Antoine Autheman
Chairman
Christopher Legge
Director
27 April 2017
Report of the Audit Committee
On the following pages, we present the Audit Committee (the
“Committee”) Report for the year ended 31
December 2016, setting out the Committee’s structure and
composition, principal duties and key activities during the year.
As in previous years, the Committee has reviewed the Company’s
financial reporting, the independence and effectiveness of the
independent auditor and the internal control and risk management
systems of service providers.
The Board is satisfied that for the year under review and
thereafter the committee has recent and relevant commercial and
financial knowledge sufficient to satisfy the provisions of The
Code.
Structure and Composition
The Committee is chaired by Christopher
Legge and its other members are Marc Antoine Autheman,
Keith Dorrian and Christopher Fish. The Committee operates within
clearly defined terms of reference and comprises all the Directors
except the Investment Manager’s representative.
On 18 November 2016, the Board
agreed to amend the Audit Committee Terms of Reference to indicate
that appointments to the Audit Committee shall be for a period of
up to three years, which may be extended for two further three year
periods, and thereafter annually, provided that the Director whose
appointment is being considered remains an Independent Director for
the period of extension.
Name of Audit Committee
Member |
Date of Appointment to Audit
Committee |
Next Date for Review |
Chris Legge |
19 June 2007 |
– 17 April 2013 *
– 18 April 2016
– April 2019 |
Marc-Antoine Autheman |
21 June 2007 |
– 17 April 2013 *
– 18 April 2016
– April 2019 |
Keith Dorrian |
19 June 2007 |
– 17 April 2013 *
– 14 April 2015
– April 2018 |
Chris Fish |
19 June 2007 |
– 17 April 2013 *
– 16 April 2014
– April 2017 |
* Date specific
tenure introduced on 17 April
2013.
The Committee conducts formal meetings at least three times a
year. The table under Director Meeting Attendances sets out
the number of Committee meetings held during the year ended
31 December 2016 and the number of
such meetings attended by each committee member. The independent
auditor is invited to attend those meetings at which the annual and
interim reports are considered. The independent auditor and the
Committee will meet together without representatives of either the
Administrator or Investment Manager being present if either
considers this to be necessary.
Principal Duties
The role of the Committee includes:
• monitoring the integrity of the published financial statements
of the Company;
• keeping under review the consistency and appropriateness of
accounting policies on a year to year basis. Satisfying itself that
the annual accounts, the interim statement of financial results and
any other major financial statements issued by the Company follow
generally accepted accounting principles and give a true and fair
view of the Company and any associated undertakings’ affairs;
matters raised by the external auditors about any aspect of the
accounts or, of the Company’s control and audit procedures, are
appropriately considered and, if necessary, brought to the
attention of the Board, for resolution.
• monitoring and reviewing the quality and effectiveness of the
independent auditors and their independence;
• considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company’s independent auditor;
• monitoring and reviewing the internal control and risk
management systems of the service providers; and
• considering at least once a year whether there is a need for
an internal audit function.
The complete details of the Committee’s formal duties and
responsibilities are set out in the Committee’s terms of reference,
which can be obtained from the Company’s website.
Independent Auditor
The Committee is also the forum through which the independent
auditor (the “auditor”) reports to the Board of Directors. The
objectivity of the auditor is reviewed by the Committee which also
reviews the terms under which the auditor is appointed to perform
non-audit services. The Committee reviews the scope and results of
the audit, its cost effectiveness and the independence and
objectivity of the auditor, with particular regard to non-audit
fees. The Committee has established pre-approval policies and
procedures for the engagement of Ernst & Young LLP to provide
non-audit services.
Ernst & Young LLP has been the independent auditor from the
date of the initial listing on the London Stock Exchange.
The audit fees proposed by the auditors each year are reviewed
by the Committee taking into account the Company’s structure,
operations and other requirements during the year and the Committee
makes recommendations to the Board.
There were no non-audit fees paid to Ernst and Young LLP during
the year other than in respect of the interim review of the
Company’s condensed accounts to 30 June
2016. The Committee considers Ernst & Young LLP to be
independent of the Company. The Committee also met with the
external auditors without the Investment Manager or administrator
being present so as to provide a forum to raise any matters of
concern in confidence.
Evaluations or Assessments Made During
the Year
The following sections discuss the assessments made by the
Committee during the year:
Significant Areas of Focus for the
Financial Statements’
The Committee’s review of the interim and annual financial
statements focused on the following area:
The Company’s investment in the Master Fund represents
substantially all the net assets of the Company and as such is the
biggest factor in relation to the accuracy of the Financial
Statements. The holding in the Master Fund has been confirmed with
the Company’s administrator and the Master Fund. This investment
has been valued in accordance with the Accounting Policies set out
in Note 3 to the Audited Financial Statements. The Audit Committee
has reviewed the Financial Statements of the Master Fund and their
Accounting Policies and determined the fair value of the investment
as at 31 December 2016 is reasonable.
The Financial Statements of the Master Fund for the year ended
31 December 2016 were audited by
Ernst & Young who issued an unmodified audit opinion dated
17 March 2017.
Effectiveness of the Audit
The Committee had formal meetings with Ernst & Young LLP
during the course of the year: 1) before the start of the audit to
discuss formal planning, discuss any potential issues and agree the
scope that will be covered and 2) after the audit work was
concluded to discuss any significant matters such as those stated
above.
The Board considered the effectiveness and independence of Ernst
& Young LLP by using a number of measures, including but not
limited to:-
• the audit plan presented to them before the start of the
audit;
• the audit results report including where appropriate,
explanation for any variations from the original plan;
• changes to audit personnel;
• the auditor’s own internal procedures to identify threats to
independence;
• feedback from both the Investment Manager and the
Administrator; and
• the Committee obtains confirmation from Ernst & Young LLP
on their independence as additional comfort for the Committee.
Further to the above, at the conclusion of the 2016 audit, the
Committee performed a specific evaluation of the performance of the
independent auditor. This is supported by the results of
questionnaires completed by the Committee covering areas such as
quality of audit team, business understanding, audit approach and
management. This questionnaire was part of the process by which the
Committee assessed the effectiveness of the audit.
There were no adverse findings from this evaluation.
The outsourcing of any non-audit services such as interim
review, tax compliance, tax structuring, private letter rulings,
accounting advice, quarterly reviews and disclosure are normally
permitted but should be pre-approved by the Committee, or two
non-executive Directors.
The annual budget for both the audit and audit related services
was presented to the Committee for pre-approval.
Audit fees and Safeguards on
Non-Audit Services
The tables below summarises the remuneration payable by the
Company to Ernst & Young LLP during the years ended
31 December 2016 and 31 December 2015.
|
31 December
2016 |
31 December
2015 |
|
US$ |
US$ |
Interim review |
|
|
Ernst & Young LLP |
50,183 |
53,111 |
Annual audit – the Company |
|
|
Ernst & Young LLP |
37,032 |
44,172 |
Total Fees |
87,215 |
97,283 |
Annual Audit – Third Point
Offshore Independent Voting Company Limited |
|
|
Ernst & Young LLP |
8,417 |
9,718 |
The independence of Ernst & Young LLP is in the Committee’s
opinion not compromised by Ernst & Young performing the interim
review.
Internal Control
The Committee has examined the need for an internal audit
function. The Committee considered that the systems and procedures
employed by the Investment Manager and the Administrator, including
their internal audit functions, provided sufficient assurance that
a sound system of internal control, which safeguards the Company’s
assets, has been maintained. An internal audit function specific to
the Company is therefore considered unnecessary.
The Committee has requested and received SOC1 or equivalent
reports such as service provider assessment reports from the
Investment Manager, the Company’s Administrator and Master Fund’s
Administrators to enable it to fulfil its duties under its terms of
reference. Representatives of the auditors, Investment Manager and
the Administrator attend the meetings as a matter of practice and
presentations are made by those attendees as and when required.
The Committee also attended the Investment Manager’s operational
due diligence presentation which occurs every two years in
February 2016.
Conclusion and Recommendation
After reviewing various reports such as the operational and risk
management framework and performance reports from management,
liaising where necessary with Ernst & Young LLP, and assessing
the significant areas of focus for financial statement issues
listed, the Committee is satisfied that the financial statements
appropriately address the critical judgements and key estimates
(both in respect to the amounts reported and the disclosures).
The Committee is also satisfied that the significant assumptions
used for determining the value of assets and liabilities have been
appropriately scrutinised, challenged and are sufficiently
robust.
The Independent Auditor reported to the Committee that no
material misstatements were found in the course of its work.
Furthermore, both the Investment Manager and the Administrator
confirmed to the Committee that they were not aware of any material
misstatements including matters relating to presentation. The
Committee confirms that it is satisfied that the Independent
Auditor has fulfilled its responsibilities with diligence and
professional scepticism.
Consequent to the review process on the effectiveness of the
independent audit and the review of audit services, the Committee
has recommended that Ernst & Young LLP be reappointed for the
coming financial year.
For any questions on the activities of the Committee not
addressed in the foregoing, a member of the Committee remains
available to attend each Annual General Meeting to respond to such
questions.
The UK Corporate Governance Code issued by the Financial
Reporting Council (“FRC”) included a recommendation to put audits
out to tender at least every ten years. The EU Competition
Commission have also issued draft proposals in respect of audit
tendering and mandatory rotation of auditors. The Company is not
required to apply this EU Directive as they are not an EU Public
Interest Entity (“PIE”), due to being incorporated in Guernsey. However, the Audit Partner rotates
every five years and the Company will consider putting the audit
out to tender every ten years in line with the FRC’s suggestions on
audit tendering. This will be considered further when the audit
partner next rotates. The Audit Committee will continue to monitor
developments around these proposals and will formulate a policy in
respect to audit tendering and rotation at the appropriate
time.
Christopher Legge
Audit Committee Chairman
27 April 2017
Investment Manager’s Review
Performance Summary¹
USD Class |
31-Dec-16 |
31-Dec-15 |
%
Return |
Share Price |
14.38 |
14.70 |
(2.2%) |
Net asset value per
share |
17.63 |
16.62 |
6.1% |
Premium/(discount) |
(18.4%) |
(11.6%) |
|
GBP Class |
31-Dec -16 |
31-Dec-15 |
%
Return |
Share Price |
14.15 |
15.05 |
(6.0%) |
Net asset value per
share |
16.84 |
15.95 |
5.6% |
Premium/(discount) |
(16.0%) |
(5.6%) |
|
¹ For the period 1 January 2016 to 31
December 2016.
Strategy Performance
For the twelve months ended 31 December
2016, the net asset value per share increased by 6.1% and
5.6% in the U.S. Dollar and Sterling share classes,
respectively.
The investment market in 2016 was extremely volatile. Several
key events had a profound impact on market movements including the
lack of swift currency devaluation in China during the First Quarter, the Brexit
vote in June, and the U.S. Presidential election in November.
Correct interpretation of the events, proactive positioning, and a
nimble portfolio were vital aspects to successful investing.
The net investment results for the year were driven by
contribution from most strategies and sectors in the portfolio.
Credit contributed the largest share of profits with modest losses
in structured credit greatly outweighed by gains in corporate and
sovereign credit. Investments in the energy sector were the primary
driver of returns for the year in corporate credit. Within
equities, strong performance from investments in the financials and
industrials sectors countered negative attribution from two large
healthcare positions.
Risk Outlook
The Investment Manager shifted the portfolio throughout 2016 and
ended the year with more net exposure but less gross exposure
relative to the beginning of the year. In the near term, the
Investment Manager expects to see accelerating growth in the U.S.
and globally and fiscal stimulus in the U.S. The combination could
cause earnings to rise and a very different investing environment.
A reflationary market can create favorable conditions for Third
Point’s investment strategies including event driven and value
investing, risk arbitrage, and activism. The Investment Manager has
increased exposure to equities across sectors and decreased
investments in corporate and structured credit
.
At 31 December 2016, exposure in
the Investment Manager’s portfolio across four funds and three
managed accounts was as follows1:
|
Long |
Short |
Net |
Equities |
64.3% |
(6.0%) |
58.3% |
Credit |
33.2% |
(6.9%) |
26.3% |
Other |
18.7% |
(19.1%) |
(0.4%) |
1Relates to the Third Point Offshore Master Fund
L.P.
Net equity exposure is defined as the long exposure minus the
short exposure of all equity positions (including long/short,
arbitrage, and other strategies), and can serve as a rough measure
of the exposure to fluctuations in overall market levels. The
Investment Manager continues to closely monitor the liquidity of
the portfolio, and is comfortable that the current composition is
aligned with the redemption terms of the fund.
Third Point LLC
27 April 2017
Independent Auditor’s Report
to the members of Third Point Offshore Investors Limited
Our opinion on the financial
statements
In our opinion:
• the financial statements of Third Point Offshore Investors
Limited (the “Company”) give a true and fair view of the state of
affairs of the Company as at 31 December
2016 and of its results for the year then ended;
• the financial statements have been properly prepared in
accordance with accounting principles generally accepted in
the United States of America;
and
• the financial statements have been prepared in accordance with
the requirements of the Companies (Guernsey) Law, 2008.
What we have audited
The Company’s financial statements comprise:
• Statements of Assets and Liabilities;
• Statements of Operations;
• Statements of Changes in Net Assets;
• Statements of Cash Flows;
• Related notes 1 to 13 to the financial statements;
The financial reporting framework that has been applied in their
preparation is applicable law and accounting principles generally
accepted in the United States of
America.
Overview of our audit approach
Risks of material misstatement:
• valuation of investments; and
• existence and ownership of investments.
Audit scope:
• We performed an audit of the complete financial statements of
the Company for the year ended 31 December
2016;
• Procedures were performed on the audit team’s behalf by EY New
York, under our instruction and supervision, in respect of the
Company’s share of the Master Fund’s income and expenses as
reported in the Statement of Operations.
Materiality:
• overall materiality of US$17.6
million which represents 2% of total equity.
Our assessment of risks of material
misstatement
We identified the risks of material misstatement described below
as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the
direction of the efforts of the audit team. In addressing these
risks, we have performed the procedures below which were designed
in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual
areas.
Risk |
Our response to the risk |
What we concluded to
the Audit
Committee |
Valuation of
investments ($879m, PY comparative $836m)
Refer to the Audit Committee Report and Accounting
Policies
The investments held are measured at fair value through profit or
loss, and their fair value is determined by reference to the
published NAV per share of the investee fund, as calculated by its
independent administrator.
The valuation risk considers the risk of an error in the
application of the published NAV per share, obtained from the
independent administrator of the investee fund, when calculating
the fair value of the Company’s investments. |
Our response comprised
of substantive audit testing of investment valuation,
including:
• Agreeing the valuation per share of the Company’s investments in
the investee fund to the NAV per share of the investee fund
published by its independent administrator; and
• Agreeing the valuation per share of the Company’s investments in
the investee fund to the NAV per share of the investee fund per its
audited financial statements for the year ended 31 December 2016,
which were approved on 17 March 2017. |
We confirmed there were no matters
identified during our audit work on valuation of investments that
we wanted to bring to the attention of the Audit Committee. |
Existence and
ownership of investments ($879m, PY comparative $836m)
Refer to the Audit Committee Report and Accounting Policies
.
Risk that investments presented in the financial statements do not
exist or the Company does not have the rights to cash flows derived
from them. Failure to obtain good title exposes the Company to
significant risk of loss. |
Our response comprised
performance of substantive audit testing of investment existence
and ownership including:
• Obtaining a confirmation, as at 31 December 2016, of the
Company’s holdings in the investee fund into which the Company
invests, from the independent administrator of the investee fund,
and agreeing it to the accounting records of the Company; and
• Obtaining contracts/ supporting documentation for additions and
disposals of holdings in the investee fund that took place during
the year ended 31 December 2016, and agreeing the details to the
accounting records of the Company, on a sample basis. |
We confirmed there were no matters
identified during our audit work on existence and ownership of
investments that we wanted to bring to the attention of the Audit
Committee. |
Addressing the risk of management override is a requirement of
auditing standards, and we concluded that this risk is most likely
to occur in the risk areas identified above. As a result, we have
not provided separate responses to the risk of management override,
and have instead reflected this consideration of risk as part of
our responses to the specific risks set out above.
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope. Taken together, this enables us to form an opinion on the
financial
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
“Materiality” is the magnitude of an omission or misstatement
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements.
Materiality provides a basis for determining the nature and
extent of our audit procedures.
We determined materiality for the Company to be US$17.6 million (2015: US$16.7 million) which is approximately 2% (2015:
2%) of net assets. We used net assets as a basis for determining
materiality because the Company’s primary performance measures for
internal and external reporting are based on net assets.
During the course of our audit we reassessed initial materiality
and noted no factors leading us to amend materiality levels from
those originally determined at the audit planning stage.
Performance materiality
“Performance materiality” is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment our
judgment was that performance materiality was 75% (2015: 75%) of
materiality, namely US$13.2 million
(2015: US$12.5 million).
We have set performance materiality at this percentage due to
investment strategy remaining consistent with our previous
experience and limited identification of audit findings in previous
periods.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$0.88million (2015:US$0.84million) which is set at 5% of planning
materiality, as well as differences below that threshold, that, in
our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Scope of the audit of the financial
statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error.
This includes an assessment of:
• whether the accounting policies are appropriate to the
Company’s circumstances and have been consistently applied and
adequately disclosed;
• the reasonableness of significant accounting estimates made by
the directors; and
• the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the annual report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implication for our report.
Respective responsibilities of
directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for
Auditors.
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s 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 and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Matters on which we are required to
report by exception
Under the ISAs (UK and Ireland)
reporting |
We are required to
report to you if, in our opinion, financial and non-financial
information in the annual report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
• otherwise misleading.
In particular, we are required to report whether we have identified
any inconsistencies between our knowledge acquired in the course of
performing the audit and the directors’ statement that they
consider the annual report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the entity’s performance, business
annual report appropriately addresses those matters that we
communicated to the audit committee that we consider should have
been disclosed. model and strategy; and whether the annual report
appropriately addresses those matters that we communicated to the
audit committee that we consider should have been disclosed |
We have no exceptions to
report. |
Listing Rules review
requirements |
We are required to
review:
• the directors’ statement in relation to going concern, and
longer-term viability, and
• the part of the Corporate Governance Statement relating to the
company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review. |
We have no
exceptions to
report. |
The Companies (Guernsey) Law,
2008 |
We are required to
report to you if, in our opinion:
• adequate accounting records have not been kept; or
• the financial statements are not in agreement with the accounting
records and returns; or
• we have not received the information and explanations required
for our audit. |
We have nothing material to add or
to draw attention to. |
ISAs (UK and Ireland)
reporting |
We are required to give
a statement as to whether we have anything material to add or to
draw attention to in relation to:
• the directors’ confirmation in the annual report that they have
carried out a robust assessment of the principal risks facing the
entity, including those that would threaten its business model,
future performance, solvency or liquidity;
• the disclosures in the annual report that describe those risks
and explain how they are being managed or mitigated;
• the directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the entity’s ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements; and
• the directors’ explanation in the annual report as to how they
have assessed the prospects of the entity, over what period they
have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions. |
We have
nothing
material to add
or to draw
attention to. |
Christopher James Matthews FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
27 April 2017
1. The maintenance and integrity of the Third Point
Offshore Investors Limited web site is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the
website.
2. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Statements of Assets and
Liabilities
|
As at |
As at |
|
31 December
2016 |
31 December
2015 |
(Stated in United States
Dollars) |
US$ |
US$ |
Assets |
|
|
Investment in Third
Point Offshore Fund Ltd at fair value
(Cost: US$451,424,093 31 December 2015: US$451,964,939) |
879,180,943 |
835,871,318 |
Cash |
88,845 |
99,015 |
Redemption receivable |
132,000 |
174,000 |
Other assets |
16,782 |
30,260 |
Total assets |
879,418,570 |
836,174,593 |
|
|
|
|
|
|
Liabilities |
|
|
Accrued expenses and other
liabilities |
118,217 |
156,305 |
Directors’ fees payable (Note
5) |
70,549 |
66,649 |
Administration fee payable (Note
4) |
43,858 |
40,894 |
Total liabilities |
232,624 |
263,848 |
|
|
|
Net assets |
879,185,946 |
835,910,745 |
|
|
|
Number of Ordinary Shares in
issue (Note 6) |
|
|
US Dollar Shares |
47,500,847 |
47,655,833 |
Sterling Shares |
2,014,842 |
1,868,055 |
|
|
|
Net asset value per Ordinary
Share (Notes 8 and 11) |
|
|
US Dollar Shares |
$17.63 |
$16.62 |
Sterling Shares |
£16.84 |
£15.95 |
|
|
|
Number of Ordinary B Shares in
issue (Note 6) |
|
|
US Dollar Shares |
31,667,254 |
31,770,577 |
Sterling Shares |
1,343,242 |
1,245,382 |
The financial statements were approved by the Board of Directors
on 27 April 2017 and signed on its
behalf by:
Marc Antoine Autheman
Chairman
Christopher Legge
Director
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Operations
|
For the year
ended |
For the year
ended |
|
31 December
2016 |
31 December
2015 |
(Stated in United States
Dollars) |
US$ |
US$ |
Realised and unrealised
gain/(loss) from investment transactions allocated from Master
Fund |
|
|
Net realised gain from
securities, derivative contracts and foreign
currency translations |
18,699,871 |
17,074,389 |
Net change in
unrealised gain/(loss) on securities, derivative
contracts and foreign currency translations |
29,019,101 |
(34,520,795) |
Net gain/(loss) from currencies
allocated from Master Fund |
879,489 |
(839,993) |
Total net realised
and unrealised gain/(loss) from investment
transactions allocated from Master Fund |
48,598,461 |
(18,286,399) |
|
|
|
|
|
|
Net investment income / (loss)
allocated from Master Fund |
|
|
Interest income |
19,186,554 |
11,706,015 |
Dividends, net of
withholding taxes of US$2,264,844
(31 December 2015: US$2,149,987) |
6,307,813 |
5,318,091 |
Other income |
333,666 |
323,867 |
Stock borrow fees |
(419,877) |
(253,056) |
Incentive allocation (Note 2) |
(6,384,420) |
(6,342) |
Investment Management fee |
(16,996,235) |
(17,541,615) |
Dividends on securities sold, not
yet purchased |
(768,064) |
(518,764) |
Interest expense |
(2,500,010) |
(1,680,569) |
Other expenses |
(2,896,563) |
(2,542,826) |
Total net investment loss
allocated from Master Fund |
(4,137,136) |
(5,195,199) |
|
|
|
|
|
|
Company expenses |
|
|
Administration fee (Note 4) |
(159,895) |
(170,079) |
Directors’ fees (Note 5) |
(228,783) |
(267,271) |
Other fees |
(700,217) |
(761,926) |
Expenses paid on behalf of Third
Point Offshore Independent Voting Company Limited (Note 4) |
(97,229) |
(121,320) |
Total Company expenses |
(1,186,124) |
(1,320,596) |
Net loss |
(5,323,260) |
(6,515,795) |
Net increase/(decrease) in net
assets resulting from operations |
43,275,201 |
(24,802,194) |
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Changes in Net
Assets
|
For the year
ended |
For the year
ended |
|
31 December
2016 |
31 December
2015 |
(Stated in United States
Dollars) |
US$ |
US$ |
Increase in net assets resulting
from operations |
|
|
Net realised gain from securities,
commodities, derivative contracts and foreign currency translations
allocated from Master Fund |
18,699,871 |
17,074,389 |
Net change in unrealised gain/(loss)
on securities, derivative contracts and foreign currency
translations allocated from Master Fund |
29,019,101 |
(34,520,795) |
Net gain/(loss) from currencies
allocated from Master Fund |
879,489 |
(839,993) |
Total net investment loss allocated
from Master Fund |
(4,137,136) |
(5,195,199) |
Total Company expenses |
(1,186,124) |
(1,320,596) |
Net increase/(decrease) in net
assets resulting from operations |
43,275,201 |
(24,802,194) |
Net assets at the beginning of the
year |
835,910,745 |
860,712,939 |
Net assets at the end of the
year |
879,185,946 |
835,910,745 |
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Statements of Cash Flows
|
For the year
ended |
For the year
ended |
|
31 December
2016 |
31 December
2015 |
(Stated in United States
Dollars) |
US$ |
US$ |
Cash flows from operating
activities |
(682,827) |
(938,824) |
Operating expenses |
(224,883) |
(267,679) |
Directors’ fees |
(156,931) |
(172,917) |
Administration fee |
(97,229) |
(121,320) |
Third Point Offshore Independent
Voting Company Limited¹ |
1,151,700 |
46,855,500 |
Redemption from Master Fund |
|
|
|
|
|
Cash (outflow)/inflow from
operating activities |
(10,170) |
45,354,760 |
|
|
|
Cash flows from financing
activities |
|
|
Dividend distribution |
– |
(45,347,221) |
|
|
|
Net (decrease)/increase in
cash |
(10,170) |
7,539 |
Cash at the beginning of the
year |
99,015 |
91,476 |
Cash at the end of the
year |
88,845 |
99,015 |
¹Third Point Offshore Independent
Voting Company Limited consists of Director Fees, Audit Fee and
General Expenses.
See accompanying notes and attached
Audited Financial Statements of Third Point Offshore Fund Ltd. and
Third Point Offshore Master Fund L.P.
Notes to the Audited Financial Statements
For the year ended 31 December
2016
1. The Company
Third Point Offshore Investors Limited (the “Company”) is an
Authorised closed-ended investment company incorporated in
Guernsey on 19 June 2007 for an unlimited period, with
registration number 47161.
2. Organisation
Investment Objective and Policy
The Company’s investment objective is to provide its
Shareholders with consistent long term capital appreciation,
utilising the investment skills of the Investment Manager, through
investment of all of its capital (net of short-term working capital
requirements) in Class E shares of Third Point Offshore Fund, Ltd.
(the “Master Fund”), an exempted company formed under the laws of
the Cayman Islands on 21 October 1996. The Master Fund’s investment
objective is to seek to generate consistent long-term capital
appreciation, by using an event driven, bottom-up, fundamental
approach to evaluate various types of securities throughout
companies’ capital structures. The Master Fund is managed by the
Investment Manager and the Investment Manager’s implementation of
the Master Fund’s investment policy is the main driver of the
Company’s performance. The Master Partnership invests all of its
investable assets in a corresponding open-end management investment
company having the same investment objective as the Master
Partnership.
The Master Fund is a limited partner of Third Point Offshore
Master Fund L.P. (the “Master Partnership”), an exempted limited
partnership organised under the laws of the Cayman Islands, of which Third Point Advisors
II L.L.C., an affiliate of the Investment Manager, is the general
partner. Third Point LLC is the Investment Manager to the Company,
the Master Fund and the Master Partnership. The Master Fund and the
Master Partnership share the same investment objective, strategies
and restrictions as described above.
The Audited Financial Statements of the Master Fund and the
Audited Financial Statements of the Master Partnership, should be
read alongside the Company’s Annual Report and Audited Financial
Statements.
Investment Manager
The Investment Manager is a Limited Liability Company formed on
28 October 1996 under the laws of the
State of Delaware. The Investment
Manager was appointed on 27 June 2007
and is responsible for the management and investment of the
Company’s assets on a discretionary basis in pursuit of the
Company’s investment objective, subject to the control of the
Company’s Board and certain borrowing and leveraging
restrictions.
The Company does not pay the Investment Manager for its services
as the Investment Manager is paid a management fee of 2 per cent
per annum of the Company’s share of the Master Fund’s net asset
value (the “NAV”) and a general partner incentive allocation of 20
per cent of the Master Fund’s NAV growth (“Full Incentive Fee”)
invested in the Master Partnership, subject to certain conditions
and related adjustments, by the Master Fund. If a particular series
invested in the Master Fund depreciates during any fiscal year and
during subsequent years there is a profit attributable to such
series, the series must recover an amount equal to 2.5 times the
amount of depreciation in the prior years before the Investment
Manager is entitled to the Full Incentive Fee. Until this occurs,
the series will be subject to a reduced incentive fee equal to half
of the Full Incentive Fee. The Company was allocated US$6,384,420 (31 December
2015: US$6,342) of incentive
fees for the year ended 31 December
2016.
3. Significant Accounting
Policies
Basis of Presentation
These Audited Financial Statements have been prepared in
accordance with relevant accounting principles generally accepted
in the United States of America
(“US GAAP”). The functional and presentational currency of the
Company is United States Dollars.
Management has determined that the Fund is an investment company
in conformity with US GAAP. Therefore the Fund follows the
accounting and reporting guidance for investment companies in the
Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 946, Financial Services – Investment Companies
(“ASC 946”).
The following are the significant accounting policies adopted by
the Company:
Cash and Cash Equivalents
Cash in the Statements of Assets and Liabilities comprises cash
at bank and on hand. Usually this is short term cash that settles
between 0-3 months.
Valuation of Investments
The Company records its investment in the Master Fund at fair
value. Fair values are generally determined utilising the net asset
value (“NAV”) provided by, or on behalf of, the underlying
Investment Managers of each investment fund. In accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 820 “Fair Value Measurement”, fair value
is defined as the price the Company would receive upon selling a
security in a timely transaction to an independent buyer in the
principal or most advantageous market of the security. For further
information refer to the Master Partnership’s Audited Financial
Statements.
The valuation of securities held by the Master Partnership,
which the Master Fund directly invests in, is discussed in the
notes to the Master Partnership’s Audited Financial Statements. The
net asset value of the Company’s investment in the Master Fund
reflects its fair value. At 31 December
2016, the Company’s US Dollar and Sterling shares
represented 12.26% and 0.61% (31 December
2015: 10.94% and 0.61%) respectively of the Master Fund’s
net asset value.
Disclosures for Investments in Certain Entities that Calculate
Net Asset Value per Share (or its equivalent) (“ASU 2015-07”), in
which certain investments measured at fair value using the net
asset value per share method (or its equivalent) as a practical
expedient are not required to be categorised in the fair value
hierarchy.
Uncertainty in Income Tax
ASC Topic 740 “Income Taxes” requires the evaluation of tax
positions taken or expected to be taken in the course of preparing
the Company’s tax returns to determine whether the tax positions
are “more likely- than-not” of being sustained by the applicable
tax authority based on the technical merits of the position. Tax
positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the year of
determination. Management has evaluated the implications of ASC 740
and has determined that it has not had a material impact on these
Audited Financial Statements.
Income and Expenses
The Company records its proportionate share of the Master Fund’s
income, expenses and realised and unrealised gains and losses on a
monthly basis. In addition, the Company accrues interest income, to
the extent it is expected to be collected, and other expenses.
Use of Estimates
The preparation of Audited Financial Statements in conformity
with US GAAP may require management to make estimates and
assumptions that affect the amounts and disclosures in the
financial statements and accompanying notes. Actual results could
differ from those estimates. Other than what is underlying in the
Master Fund and the Master Partnership, the Company does not use
any estimates in respect of amounts that are material to the
Audited Financial Statements.
Foreign Exchange
Investment securities and other assets and liabilities
denominated in foreign currencies are translated into United States
Dollars using exchange rates at the reporting date. Purchases and
sales of investments and income and expense items denominated in
foreign currencies are translated into United States Dollars at the
date of such transaction. All foreign currency translation gains
and losses are included in the Statement of Operations.
Recent accounting pronouncements
In August 2014, the FASB issued
ASU 2014-15 – Presentation of Financial Statements – Going
Concern (Subtopic 205-40)(“ASU 2014-15”). The pronouncement
defined management’s responsibility regarding the assessment of the
Company’s ability to continue as a going concern, even if the
Company’s liquidation is not imminent. Currently, no similar
guidance exists for manager representation of going concern. Under
this guidance, during each period on which financial statements are
prepared, management needs to evaluate whether there are conditions
or events that, in the aggregate, raise substantial doubt about the
Company’s ability to continue as a going concern within one year
after the date the financial statements are issued. Substantial
doubt exists if these conditions or events indicate that the
Company will be unable to meet its obligations as they become due.
If such conditions or events exist, management should develop a
plan to mitigate or alleviate these conditions or events.
Regardless of management’s plan to mitigate, certain disclosures
must be made in the financial statements. ASU 2014- 15 is effective
for annual periods ending after 15 December
2016. The Company has adopted the pronouncement in the
current year. Having reassessed the principal risks; the Directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the Audited Financial Statements.
In May 2015, the FASB issued ASU
2015-07, Disclosures for Investments in Certain Entities that
Calculate Net Asset Value per Share (or its equivalent) (“ASU
2015-07”), in which certain investments measured at fair value
using the net asset value per share method (or its equivalent) as a
practical expedient are not required to be categorised in the fair
value hierarchy. This guidance is effective for annual reporting
periods, including interim periods, beginning after 15 December 2016. The Company and the Master
Partnership have adopted ASU 2015-07 and accordingly have not
levelled applicable positions.
In January 2016, the FASB issued
Accounting Standards Update No. 2016-01 (ASU 2016-01) “Financial
Instruments-Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities.” ASU 2016-01 amends
various aspects of the recognition, measurement, presentation, and
disclosure for financial instruments. ASU 2016-01 is effective for
annual reporting periods, and interim periods within those years
beginning after 15 December 2017. We
do not expect that this standard will have a material effect on our
financial statements.
4. Material Agreements
Management and Incentive fees
The Investment Manager was appointed by the Company to invest
its assets in pursuit of the Company’s investment objectives and
policies. As disclosed in Note 2, the Investment Manager is
remunerated by the Master Fund by way of management fees and
incentive fees.
Administration fees
Under the terms of an Administration Agreement dated
29 June 2007, the Company appointed
Northern Trust International Fund Administration Services
(Guernsey) Limited as
Administrator (the “Administrator”) and Corporate Secretary.
The Administrator is paid fees based on the NAV of the Company,
payable quarterly in arrears. The fee is at a rate of 2 basis
points of the NAV of the Company for the first £500 million of NAV
and a rate of 1.5 basis points for any NAV above £500 million. This
fee is subject to a minimum of £4,250 per month.
The Administrator is also entitled to an annual corporate
governance fee of £30,000 for its company secretarial and
compliance activities.
In addition, the Administrator is entitled to be reimbursed
out-of-pocket expenses incurred in the course of carrying out its
duties, and may charge additional fees for certain other
services.
Total Administrator expenses during the year amounted to
US$159,895 with US$43,858 outstanding (31
December 2015: US$170,079 with
US$40,894 outstanding).
Related Party
The Company has entered into a support and custody agreement
with Third Point Offshore Independent Voting Company Limited
(“VoteCo”) whereby, in return for the services provided by VoteCo,
the Company will provide VoteCo with funds from time to time in
order to enable VoteCo to meet its obligations as they fall due.
Under this agreement, the Company has also agreed to pay all the
expenses of VoteCo, including the fees of the directors of VoteCo,
the fees of all advisors engaged by the directors of VoteCo and
premiums for directors and officers insurance. The Company has also
agreed to indemnify the directors of VoteCo in respect of all
liabilities that they may incur in their capacity as directors of
VoteCo. The expense paid by the Company on behalf of Voteco during
the year is outlined in the Statement of Operations and amounted to
US$97,229 (31
December 2015: US$121,320).
5. Directors’ Fees
The Chairman is entitled to a fee of £60,000 per annum. All
other independent Directors are entitled to receive £36,000 per
annum with the exception of Mr. Legge who receives £44,000 per
annum as the audit committee chairman. Mr. Targoff has waived his
fees. The Directors are also entitled to be reimbursed for expenses
properly incurred in the performance of their duties as
Director. The Directors’ fees during the year amounted to
US$228,783 with US$70,549 outstanding (31 December
2015:US$267,271 with US$66,649 outstanding).
6. Share Capital
The Company was incorporated with the authority to issue an
unlimited number of Ordinary Shares (the “Shares”) with no par
value and an unlimited number of Ordinary B Shares (“B Shares”) of
no par value. The Shares may be divided into at least two classes
denominated in US Dollar and Sterling.
The Company has issued approximately 40 per cent of the
aggregate voting rights of the Company to VoteCo in the form of B
Shares. The B Shares are unlisted and except for an entitlement to
receive a fixed annual dividend at a rate of 0.0000001 pence (Sterling) do not carry any other
economic interests and at all times will represent approximately 40
per cent of the aggregate issued capital of the Company. The
Articles of Association provide that the ratio of issued US Dollar
B Shares to Sterling B Shares shall at all times approximate as
closely as possible the ratio of issued US Dollar Shares to
Sterling Shares in the Company.
|
US Dollar
Shares |
Sterling
Shares |
Number of Ordinary
Shares |
47,655,833 |
1,868,055 |
Shares issued 1 January 2016 |
|
|
Shares Converted |
|
|
Total shares transferred to share
class during the year |
225,301 |
311,571 |
Total shares transferred out of
share class during the year |
(380,287) |
(164,784) |
Shares in issue at end of
year |
47,500,847 |
2,014,842 |
|
US Dollar |
Sterling
Shares |
|
Shares US$ |
US$ |
Share Capital Account |
|
|
Share capital account at 1 January
2016 |
369,431,423 |
33,311,828 |
Shares Converted |
|
|
Total share value transferred to
share class during the year |
3,731,924 |
6,673,612 |
Total share value transferred out of
share class during the year |
(6,673,612) |
(3,731,924) |
Share capital account at end of
year |
366,489,735 |
36,253,516 |
|
US Dollar
Shares |
Sterling
Shares |
Number of Ordinary B
Shares |
|
|
Share capital account at 1 January
2016 |
31,770,577 |
1,245,382 |
Shares Converted |
|
|
Total shares transferred to share
class during the year |
150,201 |
207,715 |
Total shares transferred out of
share class during the year |
(253,524) |
(109,855) |
Shares in issue at end of
year |
31,667,254 |
1,343,242 |
In respect of each class of Shares a separate class account has
been established in the books of the Company. An amount equal to
the aggregate proceeds of issue of each Share Class has been
credited to the relevant class account. Any increase or decrease in
the NAV of the Master Fund, as calculated by the Master Fund, is
allocated to the relevant class account in the Company according to
the number of shares held by each class.
Each class account is allocated those costs, expenses, losses,
dividends, profits, gains and income which the Directors determine
in their sole discretion relate to a particular class. Expenses
which relate to the Company as a whole rather than specific classes
are allocated to each class in the proportion that its NAV bears to
the Company as a whole.
Voting Rights
Ordinary Shares carry the right to vote at general meetings of
the Company and to receive any dividends, attributable to the
Ordinary Shares as a class, declared by the Company and, in a
winding-up will be entitled to receive, by way of capital, any
surplus assets of the Company attributable to the Ordinary Shares
as a class in proportion to their holdings remaining after
settlement of any outstanding liabilities of the Company. B Shares
also carry the right to vote at general meetings of the Company but
carry no rights to distribution of profits or in the winding-up of
the Company.
As prescribed in the Company’s Articles, each Shareholder
present at general meetings of the Company shall, upon a show of
hands, have one vote. Upon a poll, each Shareholder shall, in the
case of a separate class meeting, have one vote in respect of each
Share or B Share held and, in the case of a general meeting of all
Shareholders, have one vote in respect of each US Dollar Share or
US Dollar B Share held, and two votes in respect of each
Sterling Share or Sterling B Share
held. Fluctuations in currency rates will not affect the relative
voting rights applicable to the Shares and B Shares. In addition
all of the Company’s Shareholders have the right to vote on all
material changes to the Company’s investment policy.
Repurchase of Shares and Discount
Control
The Directors of the Company were granted authority to purchase
in the market up to 14.99 per cent of each class of Shares in issue
at the Annual General Meeting on 22 June
2016, and they intend to seek annual renewal of this
authority from Shareholders. The Directors propose to utilise this
share repurchase authority to address any imbalance between the
supply of and demand for shares. Pursuant to the Director’s share
repurchase authority, the Company, through the Master Fund,
commenced a share repurchase program in December 2007. The Shares are being held by the
Master Partnership. The Master Partnership’s gains or losses and
implied financing costs related to the shares purchased through the
share purchase programme are entirely allocated to the Company’s
investment in the Master Fund. The Master Partnership has an
ownership of 11.87% of the USD shares outstanding at 31 December 2016 (31
December 2015: 10.66%). In addition, the Company, the Master
Fund, the Investment Manager and its affiliates have the ability to
purchase Shares in the after-market at any time the Shares trade at
a discount to NAV. The Master Partnership purchased 600,000 US Dollar Shares during the year ended
31 December 2016.
At 31 December 2016 and
31 December 2015 the Master
Partnership held the following Shares in the Company in the
after-market:
|
|
Number of |
|
Average
Cost |
31 December 2016 |
Currency |
Shares |
Cost |
per Share |
US Dollar Shares |
USD |
5,879,753 |
US$65,025,532 |
US$11.06 |
|
|
Number of |
|
Average
Cost |
31 December 2015 |
Currency |
Shares |
Cost |
per Share |
US Dollar Shares |
USD |
5,279,753 |
US$56,710,193 |
US$10.74 |
Further issue of Shares
Under the Articles, the Directors have the power to issue
further shares on a non-pre-emptive basis. If the Directors issue
further Shares, the issue price will not be less than the
then-prevailing estimated weekly NAV per Share of the relevant
class of Shares.
Share Conversion Scheme
The Company’s Articles incorporate provisions to enable
Shareholders of any one Class of Ordinary Shares to convert all or
part of their holding into any other Currency Class of Ordinary
Share on a monthly basis on the following terms:
(1) the right of conversion is exercisable by the said holder
giving to the Company or its authorized agent at least 10 business
days notice;
(2) the notice shall specify the number and Currency Class to be
converted from and the Currency Class of Ordinary Shares into which
they are to be converted.
(3) the notice shall be submitted either through submission of
the relevant instruction mechanism or through the return of the
relevant Ordinary Share Certificate.
Upon conversion a corresponding number of B Shares will be
converted in a similar manner.
If the aggregate NAV of any Currency Class at any month-end
falls below the equivalent of US$50
million, the Shares of that Class may be converted
compulsorily into Shares of the Currency Class with the greatest
aggregate value in US Dollar terms at the time. Each conversion
will be based on NAV (Note 8) of the share classes to be converted.
At this time the Board has no intention to compulsorily convert the
Sterling Shares into US Dollar Shares.
7. Taxation
The Fund is exempt from taxation in Guernsey under the provisions of the Income
Tax (Exempt Bodies) (Guernsey)
Ordinance 1989.
8. Calculation of Net Asset Value
The NAV of the Company is equal to the value of its total assets
less its total liabilities. The NAV per Share of each class is
calculated by dividing the NAV of the relevant class account by the
number of Ordinary Shares of the relevant class in issue on that
day.
9. Related Party Transactions
At 31 December 2016 other
investment funds owned by or affiliated with the Investment Manager
owned 5,630,444 (31 December 2015:
5,630,444) US Dollar Shares in the Company. Refer to note 4 and
note 5 for additional Related Party Transaction disclosures.
10. Significant Events
There were no significant events during the year.
11. Financial Highlights
The following tables include selected data for a single Ordinary
Share of each of the Ordinary Share classes in issue at the period
end and other performance information derived from the Audited
Financial Statements.
|
US Dollar
Shares |
Sterling
Shares |
|
31 December
2016 |
31 December
2016 |
|
US$ |
£ |
Per Share Operating
Performance |
|
|
Net Asset Value beginning of the
year |
16.62 |
15.95 |
Income from Operations |
|
|
Net realised and
unrealised gain from investment
transactions allocated from Master Fund¹ |
1.12 |
0.98 |
Net loss |
(0.11) |
(0.09) |
Total Return from
Operations |
1.01 |
0.89 |
Net Asset Value, end of the
year |
17.63 |
16.84 |
Total return before incentive fee
allocated from Master Fund |
6.81% |
6.29% |
Incentive allocation from Master
Fund |
(0.73%) |
(0.71%) |
Total return after incentive fee
allocated from Master Fund |
6.08% |
5.58% |
Total return from operations reflects the net return for an
investment made at the beginning of the year and is calculated as
the change in the NAV per Ordinary Share during the year ended
31 December 2016. An individual
Shareholder’s return may vary from these returns based on the
timing of their purchases and sales of shares on the market.
|
US Dollar
Shares |
Sterling
Shares |
|
31 December
2015 |
31 December
2015 |
|
US$ |
£ |
Per Share Operating
Performance |
|
|
Net Asset Value beginning of the
year |
17.06 |
16.43 |
Income from Operations |
|
|
Net realised and
unrealised loss from investment
transactions allocated from Master Fund¹ |
(0.31) |
(0.34) |
Net loss |
(0.13) |
(0.14) |
Total Return from
Operations |
(0.44) |
(0.48) |
Net Asset Value, end of the
year |
16.62 |
15.95 |
Total return before incentive fee
allocation from Master Fund |
(2.58%) |
(2.91%) |
Incentive allocation from Master
Fund |
0.00% |
(0.01%) |
Total return after incentive fee
allocated from Master Fund |
(2.58%) |
(2.92%) |
Total return from operations reflects the net return for an
investment made at the beginning of the year and is calculated as
the change in the NAV per Ordinary Share during the year ended
31 December 2015 and is not
annualised. An individual Shareholder’s return may vary from these
returns based on the timing of their purchases and sales of shares
on the market.
|
US Dollar
Shares |
Sterling
Shares |
|
31 December
2016 |
31 December
2016 |
|
US$ |
£ |
Supplemental data |
|
|
Net Asset Value, end of the
year |
837,302,043 |
33,930,578 |
Average Net Asset Value, for the
year ² |
809,147,678 |
29,903,025 |
Ratio to average net
assets |
|
|
Operating expenses ³ |
(2.91%) |
(2.93%) |
Incentive fee allocated from Master
Fund |
(0.76%) |
(0.64%) |
Total operating expense ³ |
(3.67%) |
(3.57%) |
Net loss |
(0.63%) |
(0.51%) |
|
US Dollar
Shares |
Sterling
Shares |
|
31 December
2015 |
31 December
2015 |
|
US$ |
£ |
Supplemental data |
|
|
Net Asset Value, end of the
year |
792,037,489 |
29,797,104 |
Average Net Asset Value, for the
year ² |
819,575,868 |
32,663,696 |
Ratio to average net
assets |
|
|
Operating expenses ³ |
(2.72%) |
(2.85%) |
Incentive fee allocated from Master
Fund |
0.01% |
(0.24%) |
Total operating expense ³ |
(2.71%) |
(3.09%) |
Net loss |
(0.74%) |
(0.81%) |
1. Includes foreign currency
translation of profit/(loss) with respect to Sterling share
class.
2. Average Net Asset Value for the year is calculated based
on published monthly estimates of NAV.
3. Operating expenses are Company expenses together with
operating expenses allocated from the Master Fund.
12. Ongoing Charge Calculation
Ongoing charges for the year ended 31
December 2016 and 31 December
2015 have been prepared in accordance with the AIC
recommended methodology. Performance fees were charged to the
Master Fund. In line with AIC guidance, an Ongoing Charge has been
disclosed both including and excluding performance fees. The
Ongoing charges for the year ended 31
December 2016 and 31 December
2015 excluding performance fees and including performance
fees are based on Company expenses and allocated Master Fund
expenses outlined below.
(excluding performance
fees) |
31 December
2016 |
31 December
2015 |
US Dollar Shares |
2.30% |
2.45% |
Sterling Shares |
2.32% |
2.46% |
(excluding performance
fees) |
31 December
2016 |
31 December
2015 |
US Dollar Shares |
3.05% |
2.44% |
Sterling Shares |
2.95% |
2.70% |
13. Subsequent Events
An annual distribution equivalent to 4% of the NAV of the
Company in respect of the year to 31
December 2016 was declared on 10
January 2017 amounting to $35,416,482 (31 December
2015: $Nil) and paid on 14 February
2017.
After due consideration, it was resolved to approve the
following director fee increases with effect from 1 January 2017:
Marc Antoine Autheman – £63,000 (increase of £3,000)
Chris Legge – £46,000 (increase of
£2,000)
Keith Dorrian – £38,000 (increase of
£2,000)
Chris Fish – £38,000 (increase of
£2,000)
Management and Administration
Directors |
Christopher Legge* |
Marc Antoine Autheman
(Chairman)* |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 255, Trafalgar Court, Les
Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey,
Channel Islands, GY1 3QL |
Channel Islands, GY1 3QL. |
Keith Dorrian* |
Joshua L Targoff |
PO Box 255, Trafalgar Court, Les
Banques, |
PO Box 255, Trafalgar Court, Les
Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey, |
Channel Islands, GY1 3QL. |
Channel Islands, GY1 3QL.
* These Directors are independent |
Christopher Fish*
PO Box 255, Trafalgar Court, Les Banques,
St Peter Port, Guernsey,
Channel Islands, GY1 3QL.
Investment Manager |
Registered Office |
Third Point LLC |
PO Box 255, Trafalgar Court, Les
Banques, |
18th Floor, 390 Park Avenue, |
St Peter Port, Guernsey, |
New York, NY 10022,
United States of America. |
Channel Islands, GY1 3QL. |
Auditors |
Administrator and
Secretary |
Ernst & Young LLP |
Northern Trust International
Fund |
PO Box 9, Royal Chambers |
Administration Services (Guernsey)
Limited, |
St Julian’s Avenue, PO Box 255, |
Trafalgar Court, Les Banques, |
St Peter Port, Guernsey, |
St Peter Port, Guernsey, |
Channel Islands, GY1 4AF. |
Channel Islands, GY1 3QL. |
Legal Advisors (UK Law) |
Legal Advisors (Guernsey
Law) |
Herbert Smith Freehills LLP |
Mourant Ozannes |
Exchange House, Primrose
Street, |
PO Box 186, Le Marchant Street, |
London, EC2A 2HS, |
St Peter Port, Guernsey, |
United Kingdom. |
Channel Islands, GY1 4HP. |
Legal Advisors (US Law) |
Receiving Agent |
Cravath, Swaine & Moore,
LLP |
Capita Registrars |
825 Eighth Avenue, |
Worldwide Plaza, The Registry, |
New York, NY 10019-7475, |
34 Beckenham Road, |
United States of America. |
Beckenham, Kent BR3 4TU,
United Kingdom. |
Registrar and CREST Service
Provider |
Corporate Broker |
Capita Registrars (Guernsey)
Limited |
Jefferies International Limited |
2nd Floor, No.1 Le Truchot, |
Vintners Place, |
St Peter Port, Guernsey, |
68 Upper Thames Street, |
Channel Islands, GY1 1WO. |
London EC4V 3BJ,
United Kingdom |