Source - PRN



BH Macro Limited Overview
Brevan Howard Capital Management LP (“BHCM”)
Northern Trust International Fund Administration Services (Guernsey) Limited (“Northern Trust”)
Corporate Broker:
J.P. Morgan Cazenove
London Stock Exchange (Premium Listing)
NASDAQ Dubai - USD Class (Secondary listing)
Bermuda Stock Exchange (Secondary listing)
BH Macro Limited (“BHM”) is a closed-ended investment company, registered and incorporated in Guernsey on 17 January 2007 (Registration Number: 46235).
BHM invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Master Fund Limited (the “Fund”).
BHM was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 March 2007.
Total Assets: $900 mm¹
1. As at 31 August 2016. Source: BHM's administrator, Northern Trust.
Summary Information BH Macro Limited NAV per Share (Calculated as at 31 August 2016)
Share Class NAV (USD mm) NAV per Share
USD Shares 225.4 $20.52
EUR Shares 50.7 €20.74
GBP Shares 623.8 £21.33
BH Macro Limited NAV per Share % Monthly Change
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27
2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32
2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04
2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91
2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.18 0.40 -0.76 1.68 -0.47 12.04
2012 0.90 0.25 -0.40 -0.43 -1.77 -2.23 2.36 1.02 1.99 -0.36 0.92 1.66 3.86
2013 1.01 2.32 0.34 3.45 -0.10 -3.05 -0.83 -1.55 0.03 -0.55 1.35 0.40 2.70
2014 -1.36 -1.10 -0.40 -0.81 -0.08 -0.06 0.85 0.01 3.96 -1.73 1.00 -0.05 0.11
2015 3.14 -0.60 0.36 -1.28 0.93 -1.01 0.32 -0.78 -0.64 -0.59 2.36 -3.48 -1.42
2016 0.71 0.73 -1.77 -0.82 -0.28 3.61 -0.99 -0.17 0.93
EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95
2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65
2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36
2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93
2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.29 0.42 -0.69 1.80 -0.54 12.84
2012 0.91 0.25 -0.39 -0.46 -1.89 -2.20 2.40 0.97 1.94 -0.38 0.90 1.63 3.63
2013 0.97 2.38 0.31 3.34 -0.10 -2.98 -0.82 -1.55 0.01 -0.53 1.34 0.37 2.62
2014 -1.40 -1.06 -0.44 -0.75 -0.16 -0.09 0.74 0.18 3.88 -1.80 0.94 -0.04 -0.11
2015 3.34 -0.61 0.40 -1.25 0.94 -0.94 0.28 -0.84 -0.67 -0.60 2.56 -3.22 -0.77
2016 0.38 0.78 -1.56 -0.88 -0.38 3.25 -0.77 0.16 0.89
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2007 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67
2008 10.18 6.86 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25
2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00
2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30 -0.45 1.03
2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.24 0.39 -0.73 1.71 -0.46 12.34
2012 0.90 0.27 -0.37 -0.41 -1.80 -2.19 2.38 1.01 1.95 -0.35 0.94 1.66 3.94
2013 1.03 2.43 0.40 3.42 -0.08 -2.95 -0.80 -1.51 0.06 -0.55 1.36 0.41 3.09
2014 -1.35 -1.10 -0.34 -0.91 -0.18 -0.09 0.82 0.04 4.29 -1.70 0.96 -0.04 0.26
2015 3.26 -0.58 0.38 -1.20 0.97 -0.93 0.37 -0.74 -0.63 -0.49 2.27 -3.39 -0.86
2016 0.60 0.70 -1.78 -0.82 -0.30 3.31 -0.99 -0.10 0.54
Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited (“IFS”). BHM NAV and NAV per Share data is provided by BHM’s administrator, Northern Trust. BHM NAV per Share % Monthly Change is calculated by BHCM.  BHM NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee of 50bps per annum.
NAV performance is provided for information purposes only. Shares in BHM do not necessarily trade at a price equal to the prevailing NAV per Share.
Data as at 31 August 2016


ASC 820 Asset Valuation Categorisation*

Performance Review
Brevan Howard Master Fund Limited
Unaudited as at 31 August 2016
% of Gross Market Value*
Level 1 70.6
Level 2 28.9
Level 3 0.2
At NAV 0.3

Source: BHCM

* This data is unaudited and has been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of the Fund.

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

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

Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.

At NAV: This represents the level of assets in the portfolio that are invested in other Brevan Howard funds and priced or valued at NAV as calculated by IFS.

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

Interest rate trading generated small overall gains from directional and curve positions. Short positions in USD and EUR rates, and long positioning in the UK over the Bank of England’s interest rate cut, all contributed. Further small gains in interest rates were generated by basis trading in the US. Interest rate volatility trading generated small losses overall as gains from Sterling and European volatility trades only partially offset losses from long positions in Japanese volatility. Emerging Markets trading and Japanese swap spreads also were small detractors. In FX, losses mostly came from EUR currency trading as well as AUD and NZD. Gains from directional positioning in GBP and JPY partially offset these losses. Credit gains were generated across several trading books from positions in Asset Backed Securities as well as US mortgage agency debt, while equity trading lost money from Japanese equity volatility positions as well as US and European directional trading.

The performance review and attributions are derived from data calculated by BHCM, based on total performance data for each period provided by the Fund’s administrator (IFS) and risk data provided by BHCM, as at 31 August 2016.


Performance by Asset Class

Monthly, quarterly and annual contribution (%) to the performance of BHM USD Shares (net of fees and expenses) by asset class*

2016 Rates FX Commodity Credit Equity Discount Management & Tender Offer Total
August 2016 0.11 -0.18 -0.01 0.06 -0.19 0.04 -0.17
Q1 2016 1.17 -0.82 -0.14 0.02 -1.14 0.57 -0.35
Q2 2016 0.01 -0.09 0.03 0.05 -0.39 2.90 2.47
QTD -0.14 -1.02 -0.04 0.08 -0.19 0.16 -1.16
YTD 2016 1.04 -1.92 -0.15 0.14 -1.71 3.65 0.93


*Data as at 31 August 2016

Methodology and Definition of Contribution to Performance:

Attribution by asset class is produced at the instrument level, with adjustments made based on risk estimates.

The above asset classes are categorised as follows:

Rates”: interest rates markets
FX”: FX forwards and options
Commodity”: commodity futures and options
Credit”: corporate and asset-backed indices, bonds and CDS

Equity”: equity markets including indices and other derivatives

Discount Management & Tender Offer”: buyback activity for discount management purposes and repurchases under the tender offer launched on 27 April 2016.

Performance by Strategy Group

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

 2016 Macro Systematic Rates FX Equity Credit EMG Commodity Discount Management & Tender Offer Total
August 2016 -0.36 -0.01 0.10 -0.04 -0.00 0.04 0.06 -0.00 0.04 -0.17
Q1 2016 -1.10 0.01 0.56 -0.02 -0.01 -0.34 -0.02 -0.00 0.57 -0.35
Q2 2016 -0.44 -0.01 -0.24 0.01 -0.01 0.08 0.21 -0.00 2.90 2.47
QTD -1.13 -0.01 0.03 -0.17 -0.00 0.06 -0.09 -0.00 0.16 -1.16
YTD 2016 -2.64 -0.00 0.34 -0.18 -0.01 -0.20 0.10 -0.00 3.65 0.93


*Data as at 31 August 2016

Methodology and Definition of Contribution to Performance:

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

The above strategies are categorised as follows:

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

Systematic”: rules-based futures trading

Rates”: developed interest rates markets

FX”: global FX forwards and options

Equity”: global equity markets including indices and other derivatives

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

EMG”: global emerging markets

Commodity”: liquid commodity futures and options

Discount Management & Tender Offer”: buyback activity for discount management purposes and repurchases under the tender offer launched on 27 April 2016.

Manager's Market Review and Outlook The information in this section has been provided to BHM by BHCM
Market Commentary
The highly anticipated August report on the labour market was mildly disappointing in each of its major components. Job gains slowed from the robust pace set in the prior three months. The unemployment rate was unchanged at 4.9%, which is the same rate seen at the beginning of the year. In addition, broader measures of labour market slack are approximately unchanged since the start of the year. The work week was revised down and ticked down further still. Finally, indicators of wage growth were soft and are showing only moderate gains over the last year.  Putting those pieces together, it looks like the labour market is slowing a little rather than strengthening.

By contrast, the early readings on current-quarter growth have improved.  The sizable inventory liquidation that subtracted from real GDP over the last year appears to be reversing, adding to growth noticeably. Apart from the inventory swing, the positive trend in consumption spending has been maintained, albeit at a slower rate than the outsized gain in the second quarter. Business fixed investment appears to be treading water, which is better than the outright declines in prior quarters. Residential investment also seems to be stabilising in the face of strong underlying fundamentals, including attractive mortgage rates, tight inventories, and positive demographic trends.

Inflation continues in a narrow channel. Core personal consumption expenditure inflation in August was 1.6% over the last year, the same rate as at the start of the year. Headline inflation has been stuck below 1% for most of the year, weighed down by past declines in energy prices that should lift over the next year.

The Federal Reserve (“the Fed”) tried in August to send a consistent message about the likelihood of further gradual rate hikes. Chair Yellen in Jackson Hole said the case for hikes had “strengthened” and Vice Chair Fischer didn’t rule out a faster pace of rate increases than present, discounted by market pricing. Other Fed officials were generally supportive of the thrust of the Chair’s message while being noncommittal about the exact timing. In Presidential politics, the national polls generally favoured Secretary Clinton over Mr Trump by a small margin as the campaign season entered its final stage. Since the campaign has been light on policy specifics, investors are left to wonder what the next administration will bring in terms of concrete policy initiatives.

Although growth has remained resilient up to the end of Q2, the UK faces considerable policy, and thus economic uncertainty on account of the June referendum vote to leave the European Union. GDP grew a firm 0.6% q/q in Q2, a touch stronger than the 0.4% increase in Q1. Whilst the Brexit vote is expected to weigh on the manufacturing sector, the depreciation in Sterling should support manufacturing activity and exports in general. Surveys on activity, which tend to lead GDP, have been somewhat mixed in recent months. The composite Purchasing Manager’s Index (“PMI”) rose 6 points in August to 53.6, after having fallen 4.9pp in the previous month. Current levels of the PMI suggest GDP should continue to grow (a better outlook than earlier expectations of a recession) albeit at a modest pace. Retail sales volumes continue to grow very strongly in recent months, reaching a pace of 4.8% on a quarterly basis. Whilst the fall in both retail surveys and consumer confidence would suggest retailing should moderate in coming months, it is possible that consumer spending is temporarily being boosted by the lower currency through tourism, especially if the rise in import prices is slow to feed through into retail prices. The housing market appears to have softened as well. House prices have moderated showing little growth in recent months; however there have not been any clear signs of the sharp fall that some commentators expected. Surveys on housing activity collapsed earlier in the year, but have picked up slightly returning to modest levels in the two months to August.

There has been little hard data on the labour market since the Brexit vote. The claimant count fell 8,600 in July and the unemployment rate recorded 4.9% in June, unchanged from the previous month. Moreover, employment grew at a robust pace of 2% y/y in June. However, there are signs that the labour market is softening; the composition of employment growth has been disappointing as it has been mostly come through growth in self-employment. Growth in full-time employees has grown very little in the three months to June. Moreover, surveys continue to suggest that employment growth should moderate in coming months. In addition, the claimant count has risen slightly in the first half of the year, despite the 8,600 fall in July. Core inflation ticked down 0.1pp to 1.3% y/y in July, however, headline inflation rose 0.1ppts to 0.6% y/y. Although the influence of the depreciation in the exchange rate has so far been modest, there are clear signs that the lower exchange rate will lift prices in the medium term. Surveys on prices have started to accelerate, reaching the highest levels in five years. Moreover, producer input prices rose 4.1% m/m in July, the largest monthly increase in the history of the series (starting in 1996). Over time, higher import prices and diminishing base effects can be expected to cause headline inflation to rise above the Bank of England’s (“BoE”) target of 2%.

The Prime Minister is expected to invoke Article 50 (the legal process in which the UK leaves the EU) in early 2017, although the exact timing remains unclear. As such, economic growth is expected to slow over the coming quarters as the uncertainty around the Brexit vote feeds into the economy. Due to projections of lower growth as well as downside risks to the inflation target in the longer-term, the Monetary Policy Committee (“MPC”) lowered the policy interest rate by 25bps to 0.25% in August and sought to increase the asset purchase facility by £70bn to £445bn in an attempt to bolster the economy. In August, the MPC suggested that if growth were to match the BoE forecast of 0.1% q/q in Q3, then further monetary policy easing would be needed in November. Given the rebound in the latest PMI, it is becoming increasingly possible that growth will surprise above the BoE’s forecast, implying that further easing may be delayed, if not halted.

Recent survey data have shown a loss of momentum of Eurozone economic activity. The final composite PMI for the euro area fell in August to 52.9 from 53.2 in July, led by a weakening of new orders, particularly in Germany and the manufacturing sector. Other key national surveys posted even more pronounced, sometimes non-linear falls, with the German IFO suffering a major setback which bodes badly for both the EMU and global growth outlook. While the declines may reflect some lagged reaction to the UK’s decision to leave the European Union, weakness in other major jurisdictions outside of Europe indicate a broader slowing of the global economy. Sluggish EMU growth is therefore likely to persist in Q3 after growth slowed to 1.2% q/q (annualised) from 2.1% in Q1. In turn, overall slower growth will continue to pressure countries more vulnerable to slowdown, let alone a recession, due to the unresolved legacy of the past crisis. In particular, any turmoil in the Italian banking system could also negatively impact the outcome of Italy’s constitutional referendum in November, to which Prime Minister Renzi has tied his political future.

The unemployment rate paused its downward trend and remained at 10.1% in July, down around 0.7pp on the year but still considerably above its pre-crisis average. Amid a still large output gap, extremely muted wage growth, lower NAIRU (“Non Accelerating Inflation Rate of Unemployment”) and exchange rate dynamics, inflationary pressures remain largely absent beyond the base effects that are expected to raise headline inflation closer to its current core rate by the beginning of next year. Economic and market conditions are unlikely to allow the ECB to “exit” from its asset purchase programme as early as March 2017, hence the Governing Council’s decision at the September meeting to refrain from extending the duration of its asset purchase programme is likely to be temporary and is poised to be revisited by the end of the year.

Chinese activity data for August showed tentative signs of stabilisation. The official PMI in July was better than expected with a 50.4 reading but the Caixin PMI fell. Hard data, from Industrial Production (“IP”) to trade, fixed asset investments and retail sales was better than expected by the consensus. However, this moderate improvement was mainly due to a higher number of working days in the month relative to the previous year. Indeed, measures corrected for this effect and / or for seasonality indicate that the Chinese business cycle peaked at the turn between the second and the third quarters and are now rolling over; a dynamic that is expected to continue in the coming months. Consumer Price Index (“CPI”) inflation fell sharply from 1.8% to 1.3% in August because of lower food inflation, undershooting consensus forecasts. Producer Price Inflation (“PPI”) deflation continued to abate, mainly because of the past increases in commodity and intermediate goods prices, a process which seems to have come to a halt in recent weeks.

The People’s Bank of China (“PBoC”) has maintained a neutral monetary policy stance; the 7-day repo rate jumped to 2.6% temporarily, but soon fell back to 2.3%. The PBoC has maintained a somewhat stable exchange rate for the past month, although with some volatility. Official FX reserves declined slightly in August, by US$15bn to US$3.18tn.

Japanese economic activity continued to trudge along.  Real GDP rose 0.7% (annualised rate) in the second quarter.  IP was flat in the latest month.  The Shoko-Chukin survey of small and medium-sized firms and the Economic Watchers survey improved but remains at subdued levels.  Altogether, the latest data do not suggest that the remaining output gap will be closed anytime soon.

Inflation trends also continued apace.  Those trends continue to be the wrong way relative to the Bank of Japan’s (”BoJ”) expressed goal of pushing inflation higher.  Twelve-month changes in the national western core rate fell 0.2pp in July, and the Tokyo measure decreased another 0.1pp to only 0.1% in August.  Inflation expectations remained unchanged at 1.7% for a third month.  The last time they were lower was at the start of 2013. The drag from the appreciation of the yen over the first half of the year will extend for a while longer, but will wane overtime. As a result, inflation will increase slightly, but there is nothing in the pipeline to suggest that inflation will come close to approaching the 2% target.

The September BoJ meeting appears to confirm fears that it has added to its mandate the support of banks, pensions and insurance companies.  While an upward sloping yield curve is a symptom of a well-functioning economy, it is not a means to achieve it.  At the meeting, the BoJ left its target for the short rate unchanged at -0.1%.  It announced no changes to the pace of government bond buying and in fact said that in the future it will be flexible in its purchases in order to manage the shape of the yield curve.  In remarks afterwards, Chairman Kuroda said that the current intention was to keep the ten-year rate around zero percent, where it is presently.  Obviously, that’s no increase in monetary accommodation and seems designed to allow some support to longer rates prospectively.  The BoJ made no changes to its stated commitment to achieve 2% inflation as early as possible, though its actions indicate otherwise.  In that light, the Bank’s “inflation-overshooting commitment”, whereby the Bank commits to expand the monetary base until the year-on-year CPI rate exceeds 2% in a stable manner, is too distant to matter now.
Enquiries Northern Trust International Fund Administration Services (Guernsey) Limited
Harry Rouillard +44 (0) 1481 74 5315

Important Legal Information and Disclaimer

BH Macro Limited (“BHM") is a feeder fund investing in Brevan Howard Master Fund Limited (the "Fund").  Brevan Howard Capital Management LP (“BHCM”) has supplied certain information herein regarding BHM’s and the Fund’s performance and outlook.

The material relating to BHM and the Fund included in this report is provided for information purposes only, does not constitute an invitation or offer to subscribe for or purchase shares in BHM or the Fund and is not intended to constitute “marketing” of either BHM or the Fund as such term is understood for the purposes of the Alternative Investment Fund Managers Directive as it has been implemented in states of the European Economic Area. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to BHM and the Fund have been obtained or derived from sources believed to be reliable, but none of BHM, the Fund or BHCM make any representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHM, the Fund and BHCM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise.

Tax treatment depends on the individual circumstances of each investor in BHM and may be subject to change in the future. Returns may increase or decrease as a result of currency fluctuations.

You should note that, if you invest in BHM, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice.  All investments are subject to risk. You are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions.


Risk Factors

Acquiring shares in BHM may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHM (and therefore gaining exposure to the Fund) should consult an authorised person specialising in advising on such investments. Any person acquiring shares in BHM must be able to bear the risks involved. These include the following:

• The Fund is speculative and involves substantial risk.

• The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund may invest in illiquid securities.

• Past results of the Fund’s investment managers are not necessarily indicative of future performance of the Fund, and the Fund’s performance may be volatile.

• An investor could lose all or a substantial amount of his or her investment.

• The Fund’s investment managers have total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment managers.

• Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors’ interests in the Fund and none is expected to develop.

• The investment managers’ incentive compensation, fees and expenses may offset the Fund’s trading and investment profits.

• The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.

• The Fund is not subject to the same regulatory requirements as mutual funds.

• A portion of the trades executed for the Fund may take place on foreign markets.

• The Fund and its investment managers are subject to conflicts of interest.

• The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.

• The Fund’s managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.

• The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.

The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in shares of BHM or the Fund and therefore reference should be made to publicly available documents and information.