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Dexion Absolute Limited  -  DAB   

Interim Management Statement

Released 07:00 01-May-2013

RNS Number : 6594D
Dexion Absolute Limited
01 May 2013

1 May 2013





This interim management statement relates to the period from 1 January 2013 to the date of publication of this statement and has been prepared solely to provide additional information in order to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules, and should not be relied on by Shareholders, or any other party, for any other purpose.


This statement provides:

1.  An explanation of material events and transactions that have taken place during the period under review and their impact on the financial position of the Company; and

2.  A general description of the financial position and performance of the Company during the period under review.



Dexion Absolute Limited is a Guernsey authorised closed-ended investment company listed on the main market of the London Stock Exchange under the Premium listing regime. Effective 1 April 2013, the Company made an investment in Aurora Offshore Fund Ltd. II ("AOFL II"), as part of its transition to become a feeder fund of AOFL II. The Company's investment objective (which is consistent with that of AOFL II) is to generate consistent long-term capital appreciation with low volatility and little correlation with the equity and bond markets. The Company will now seek to achieve its investment objective by investing substantially all of its assets (other than the illiquid investments and any funds required for short term working capital purposes and subject to realising those investments which are not the subject of in specie transfers to AOFL II and reinvesting the proceeds) in shares of AOFL II. AOFL II seeks to accomplish its investment objective by allocating its capital primarily among a select group of experienced portfolio managers, identified for their expertise in implementing a number of different alternative investment strategies in a variety of markets, through investments in collective investment vehicles and/or discretionary managed accounts managed by such managers. Underlying funds may invest in a wide range of instruments and markets on a worldwide basis, including, but not limited to, US and non-US equities and equity-related instruments, fixed income and other debt-related instruments, currencies, commodities and derivative instruments. In addition, underlying funds may utilise both over-the-counter and exchange traded instruments (including derivative instruments such as swaps, futures, options and forward agreements), trade on margin and engage in short sales. The Company's investments are predominantly US Dollar denominated and the Company normally implements a hedging policy (subject to the availability of a suitable credit facility) in an attempt to reduce the impact of currency fluctuations on its Sterling and Euro Shares.


NAV performance as of 28 March 2013


Q1 2013







Sharpe Ratio1,2,3b,4

Dexion Absolute £ Share NAV









Dexion Absolute € Share NAV









Dexion Absolute US$ Share NAV









MSCI World Index Gross (TR) (US$)5









JPM Global Gov't Bond Index (TR) (US$)5









Source: Dexion Capital plc (calculation), Bloomberg (data)


1   Reverse Auction (July 2012): The approximate impacts of the reverse auction, held in July 2012, on the net asset values of the Company's Ordinary Shares on the basis of the Redemption Prices as announced on 31 July 2012 were +0.9% for the GBP Shares, +14.0% for the EUR Shares and +24.1% for the USD Shares.

2   Foreign Exchange (2009): The approximate impacts of foreign exchange on the net asset values of the Company's ordinary shares during the period between the Company suspending and reinstating its currency hedging arrangements were +3.7% for the £ Shares, and -4.9% for the EUR Shares. The approximate impacts of foreign exchange on the net asset values of the Company's ordinary shares during the period between 1st January 2009 and the reinstatement of its currency hedging arrangements were +2.0% for the £ Shares and +5.5% for the EUR Shares. Currency hedging was suspended on 13 November 2008 and reinstated on 27 and 28 January 2009 (see RNS announcements dated 29 January 2009, No. 4916M and 27 January 2009, No. 3345M).

Reverse Auction (January 2009): The approximate impacts of the reverse auction, held in January 2009, on the net asset values of the Company's ordinary shares on the basis of the Redemption Prices as announced on 30 January 2009 were +1.7% for the £ Shares, +2.5% for the EUR Shares and +2.9% for the US$ Shares.

Reverse Auction (January 2010): The approximate impacts of the reverse auction, held in January 2010, on the net asset values of the Company's ordinary shares on the basis of the Redemption Prices as announced on 1 February 2010 were +0.3% for the £ Shares, +0.2% for the EUR Shares and +0.2% for the US$ Shares.

3   a) Annualised for stated period, and based on monthly data.

     b) Annualised from inception, and based on monthly data. Inception taken as December 2002 for DAB £ Shares and US$ indices and June 2005 for DAB € and US$ Shares.

4   Risk free rate is average 1M GBP LIBOR since December 2002 (3.09%) for DAB £, average 1M EUR LIBOR since June 2005 (1.96%) for DAB €, average 1M USD LIBOR since June 2005 (2.08%) for DAB US$ and average 1M US$ LIBOR since December 2002 (1.98%) for US$ indices.

5   MSCI World Index and JPM Global Government Bond Index annualised since December 2002. These are US$ indices to which no currency hedging is applied.  NAV returns for £ Shares and € Shares are shown inclusive of the effects of currency hedging.


The information in this table has not been subject to audit.


The statistics shown in the table above are for illustrative purposes only and do not represent forecasts of returns or volatility.


The latest available and published estimated NAV and YTD performance as of 19 April 2013 was as follows:


Share Class


YTD Performance

£ Shares

169.06 pence


EUR Shares

EUR 2.4362


US$ Shares

US$ 3.5999



Investment Adviser Review: January - March 2013

The Sterling Share class of Dexion Absolute Limited returned +2.89%, net of fees and expenses, for the first quarter of 2013, the Euro Share class returned +2.53% and the US Dollar Share class returned +2.53%.


In the first quarter, equity market indices were mostly positive with performance varying by region. The US and Japanese markets rallied in part due to accommodative monetary policy. Conversely, European and emerging markets indices lagged as the Cyprus bailout and elections in Italy reminded investors that Europe is still wrestling with sovereign debt issues. While stocks in the US appreciated during the quarter, the aggregate bond market posted a negative return amid rising benchmark interest rates, ending a streak of eight consecutive positive quarters. However, more credit-sensitive debt securities produced gains from spreads tightening. Commodity prices were mixed with metals generally declining while the energy complex was mostly positive with natural gas prices doubling from levels a year ago. In currency markets, the US dollar strengthened against most other major currencies. The Japanese yen continued to weaken in advance of the expected monetary policy changes. Meanwhile, volatility declined, reaching levels not seen since the first quarter of 2007.


Long/short equities: +6.98%. Global equity markets were generally positive with pockets of differentiation in regions and sectors. The Company's long/short equities managers' ability to capitalise on this favourable backdrop by identifying areas of dispersion led to positive results. All of the Company's managers in the strategy generated positive returns, with geographic specialists leading the way. A European specialist delivered strong results due to two long positions in European consumer businesses that continue to grow earnings from global revenues. The sector specialists were led by the Company's technology and healthcare managers. Within technology, the Company's managers added value from both their long and short portfolios. On the long side, a position in a media content provider traded higher after the provider announced plans for a large share buyback plan. Meanwhile, a short position in a company that holds a portfolio of patents was profitable after the company lost a crucial patent infringement case against a large technology company. Two large pharmaceutical companies that demonstrated resilient revenue growth yielded gains for the Company's healthcare specialist. Finally, the generalists also contributed meaningfully, accounting for roughly half of the Company's long/short equities strategy's profits due to strong performance and to the specialty's larger allocation. Long positions in technology, media, telecommunications, and consumer companies were among the most profitable areas of the market for this specialty. Of note, one of the Company's manager's position in a German cable operator rose on rumours of a potential acquisition and consolidation in the industry. In a difficult period for shorting, gains from short positions in gold and industrial metals miners were profitable. One long/short equities manager was added to the roster during the first quarter.


Long/short credit: +5.35%. The Company's long/short credit managers generated positive returns from a variety of sources during the first quarter. Amid the strong rally in equity markets, managers profited from opportunistically increasing exposure to indices and single name stocks. One manager in particular had outsized long exposure to US, European and Japanese equities that proved additive. Single name equity holdings for other managers were focused in the energy and transportation sectors and included oil and natural gas producers, US airlines and auto parts suppliers. Commercial and residential mortgage-backed securities also performed on the back of signs of a sustained housing market recovery, which also benefited equity and corporate credit holdings in real estate firms and homebuilders. A variety of stressed and distressed credit positions were also additive, including bonds and claims in a bankrupt financial institution that received additional distributions during the quarter. Macro-related investments and hedges, including short positions in the Japanese yen and US treasuries, added further profits. One long/short credit manager was added to the roster during the first quarter.


Opportunistic: +4.24%. As global financial markets started the year off strongly, the Company's opportunistic managers yielded gains from a variety of assets classes, geographies and sectors. Within equities, profits emanated from both thematic investments and idiosyncratic single name positions. For example, one of the Company's managers correctly anticipated the rise in Japanese equity prices following the election of Prime Minister Shinzo Abe, generating returns from long exposure to the Nikkei Index and a basket of stocks most likely to benefit from anticipated policy changes. Equity holdings in financial exchanges also proved beneficial, as increased equity market volumes improved revenues for the industry. Meanwhile, bottom-up stock selection within the media, gaming, technology, and homebuilding industries added further returns. Several company-specific developments benefited event driven investments as well. These included a real estate investment trust and coffee and tea producer that each received takeover offers, and a solar company that announced the sale of a non-core business unit during the quarter. Credit investments, including bonds, claims, hybrid securities and capital structure arbitrage trades, added further profits for the strategy. One opportunistic manager was added to the roster during the first quarter.


Macro: +3.66%. The Company's macro managers successfully navigated a range of macroeconomic events, including an uncertain outcome in the Italian elections, a banking crisis in Cyprus, tension in Korea, and concerns about a potential bird flu outbreak in China. Accommodative monetary policy measures by the Bank of Japan and investor expectations of additional policy moves in the future continued as the Japanese yen moved lower and local equity markets moved higher. Short positions in the Japanese yen and long positions in Japanese equities were top contributors for several of the Company's managers. Additional profit centres included long positions in US and UK equities and a short position in the euro, which weakened amid concerns about Italy and Cyprus. Finally, yield curve steepeners in the US and Europe and a long interest rate position in Mexico added to gains. Losses were driven by long fixed income positions in US treasuries, Australian government bonds, and eurodollars, as well as a short position in the German bund, which rose due to investor concerns about the banking crisis in Cyprus. Other detractors included long positions in equity and fixed income volatility and long exposure to emerging market equities, particularly in China, which saw a market sell-off due to concerns about a possible bird flu outbreak. There was no change in the portfolio of underlying macro managers in the first quarter.


Event driven: +2.81%. All but one of the Company's event driven managers yielded a positive return during the first quarter, with gains largely emanating from positions in North America and Europe. The bulk of the strategy's gains were largely attributable to the Company's managers' activist and value positions, while special situations and merger arbitrage positions did not produce notable contributions. Given the equity-oriented nature of the strategy, rising equity markets provided a favourable backdrop for the Company's event driven managers during the quarter. The Company's European activist mainly profited from core long positions in the industrials sector, primarily the result of strong earnings and a positive outlook. At the same time, the Company's North American-focused activist manager profited from substantial appreciation in its core names. More specifically, the Company's manager's positions in technology and real estate were particularly additive, as was a position in a Canadian pharmaceutical company that acquired a competitor in the fourth quarter, a move that the market began to fully appreciate in the first quarter. A Canadian-focused manager profited from a newly-initiated position in a US supermarket chain with profitable Canadian operations, whose earnings results indicated a growing market share. An activist position in a Canadian food producer added further gains. Finally, the Company's event driven manager that tends to focus on hard catalyst transactions yielded a loss as a top position in a Canadian gold miner with assets in Mexico traded down in the quarter, alongside many of its industry peers. There was no change in the portfolio of underlying event driven managers in the quarter.


Portfolio hedge: -7.59%. Rising equity markets and declining volatility during the first quarter presented formidable headwinds for the Company's managers in the portfolio hedge strategy. Losses were attributable to both the short selling and tail-risk strategies. Most notably, a number of short sellers suffered from short equity exposure to a US movie and television content distributor whose stock price spiked early in the quarter following a better-than-expected earnings report. Further losses were attributable to another core position amongst two of the Company's short sellers in a US gaming company which appreciated amid speculation over legalised online gaming in the US, while the Company's short credit specialist lost money holding credit default swaps in a supermarket chain. Conversely, two equity short sellers were able to partially offset losses with profits originating from a core short position in a struggling US retailer. The tail-risk sub-strategy experienced negative performance with declining volatility across asset classes and the fall in gold prices. The Company redeemed from one tail-risk manager during the first quarter.


Strategy returns are in US dollars, net of underlying manager fees only and not inclusive of the Company's fees and expenses.


Investment Adviser Portfolio Outlook

Due primarily to monetary policy in Europe, the US, and most recently, Japan, the near-term likelihood of a negative macroeconomic event has been reduced. As a result, both AOFL II and the Company's managers have felt more comfortable taking risk in the form of increased emphasis on security selection and market exposure. Longer-term issues remain, however, as global growth has slowed and many countries are carrying significant sovereign debt burdens. Additionally, corporate bond yields are near historically low levels. While the near-term investment environment appears favourable, the Investment Adviser remains diligent in allocating AOFL II's assets to managers who maintain flexibility in their thinking and portfolio construction to react quickly and profit from the ever changing investment landscape.


As a result of the process of transitioning the Company to become a feeder fund of AOFL II, and the consequent transfer or redemption of the Company's existing investments, it is possible that the Company's investment performance may be negatively affected.


Material Events since 1 January 2013


January 2013


Continuation Resolutions & Proposed Reorganisation (24 January 2013)

The Company's rolling 12 month discount floor provision was triggered for each class of the Company's shares on 24 January 2013. This required, in accordance with the Company's Articles of Association, a continuation vote for each class to be proposed by way of ordinary resolution. However, following consultation with major Shareholders, in seeking to address the prevailing discount to NAV and to better position the Company to meet the differing requirements of the Company's shareholder base, the Board, in conjunction with the Investment Manager and Investment Adviser, announced that it would put forward a proposed corporate reorganisation of the Company as a feeder fund of AOFL II. AOFL II is managed by the Investment Adviser with the same investment policy as the Company. As at 31 December 2012, AOFL II had a net asset value of approximately US$2.2 billion.


February 2013


Fourth Payment of Redemption Monies for Redeemed € Shares (19 February 2013)

Further to the announcement on 10 August 2012, the Board of Dexion Absolute Limited (the "Company") confirmed that the fourth redemption payment for Redeemed € Shares was US$ 0.031819 per Redeemed € Share and was made on 28 February 2013.


Restructuring Proposals (22 February 2013)

Following the announcement on 24 January 2013, the Company published and posted a circular (the "Circular") to Shareholders detailing its recommended proposals for the 2013 Redemption Offers, the adoption of New Articles and a change of investment policy (together the "Restructuring Proposals"). Details of the Restructuring Proposals, including the terms and conditions of the 2013 Redemption Offers, were set out in the Circular and accompanying Redemption Form(s). The Directors gave instructions to the Investment Manager and Investment Adviser to redeem those Investments which were not the subject of in specie transfers to AOFL II at the earliest possible opportunity and, for these purposes, redemption notices in respect of such Investments were submitted in advance of the EGM (with certain of those redemptions becoming effective on 1 April 2013).


March 2013


Result of EGM (15 March 2013)

The Board of the Company was pleased to announce that the Resolutions put to Shareholders at the Extraordinary General Meeting were duly passed. It was resolved that subject to the 2013 Redemption Offers (as defined in the Company's circular dated 22 February 2013 (the "Circular") becoming or being declared unconditional:


(i)         the articles of incorporation of the Company, as contained in the draft signed by the Chairman of the meeting            for the purposes of identification, be approved and adopted as the articles of incorporation of the Company, in    substitution for and to the exclusion of all existing articles of association or incorporation;

(ii)         the change to the investment policy of the Company as described in Part IV of the Circular be and is hereby             approved; and

(iii)        the new Investment Management Agreement between Dexion Capital (Guernsey) Limited and the Company and the new Investment Advisory Agreement between Aurora Investment Management LLC, Dexion Capital         (Guernsey) Limited and the Company each in the form signed by the Chairman of the meeting for the purposes             of identification be and is hereby approved.


            In Favour: 158,331,471 (99.4254)%

            Against:           915,000 (0.5746)%


The results of the 2013 Redemption Offers were announced on 18 March 2013. The 2013 Redemption Offers were declared unconditional and the Company began transitioning to become a feeder fund of AOFL II with effect from 1 April 2013.


Results of 2013 Redemption Offers (18 March 2013)

The Board of Dexion Absolute Limited (the "Company") announced that acceptances of the 2013 Redemption Offers had been received for 123,037,150 GBP Shares (representing approximately 45.99% of the issued GBP Shares), 1,458,371 EUR Shares (representing approximately 49.02% of the issued EUR Shares) and 5,438,944 US$ Shares (representing approximately 67.65% of the issued US$ Shares). Those Redeemed Shares had an aggregate value (using the estimated net assets of the Company as at 8 March 2013 and prevailing spot currency exchange rates) of approximately US$339.4 million (or approximately 47% of the estimated net assets of the Company). As set out in the circular dated 22 February 2013 (the "Circular"), a 2013 Redemption Portfolio was created in respect of those Redeemed Shares with a Portfolio Split Date of 28 February 2013. The first settlement date for Redeemed Shares is expected to be in August 2013.


Second Payment of Redemption Monies for Redeemed € & US$ Shares (20 March 2013)

Further to the announcement on 21 November 2012, the Board of Dexion Absolute Limited (the "Company") confirmed that the second redemption payment for Redeemed € Shares and Redeemed US$ Shares was US$ 0.474235 per Redeemed € Share and US$ 0.521571 per Redeemed US$ Share. Payment was made on 28 March 2013.


April 2013


Annual Financial Report (22 April 2013)

The Company has in accordance with DTR 6.3.5, released its Annual Financial Report for the year ended 31 December 2012. The Report is available via and has been submitted to the National Storage Mechanism and is available for inspection at


Portfolio Composition as at 1 April 2013 (26 April 2013)

In support of the Monthly Portfolio Report and annual financial statements disclosures, the Company announced its Continuing Portfolio composition. As at 1 April 2013 approximately 43.28% of the Continuing Portfolio (by NAV) was invested in AOFL II.


Investor Information

The latest available portfolio information can be accessed by eligible Shareholders via




Chris Copperwaite

Dexion Capital (Guernsey) Limited


Tel: + 44 (0) 1481 743940

End of announcement

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Interim Management Statement - RNS