Download Report

Ironbark LHP GLOBAL LONG/SHORT FUND ARSN 093 497 600
ASIC Benchmarks and Disclosure Principles Report 1 May 2015
This ASIC Benchmarks and Disclosure Principles Report (Report) provides specific information in relation to the Ironbark LHP
Global Long/Short Fund (Fund) which is issued by Certitude Global Investments Limited (ABN 25 082 852 364 AFSL 246747
(Certitude).
The current Product Disclosure Statement (PDS) is available on our website at www.ironbarkam.com. This Report should be
read in conjunction with, and is incorporated into, the PDS. This Report is updated periodically and non-materially adverse
information will be updated at www.ironbarkam.com. A paper copy of this Report or the PDS will be provided, without charge,
upon request by calling us on 1800 034 402.
Hedge funds can pose more complex risks for investors than traditional managed investment schemes. This is because of their
diverse investment strategies, in many cases involving the use of leverage and complex and offshore structures. Section 2 of
the PDS provides more information in relation to the Australian Securities and Investments Commission’s Regulatory Guide 240:
Hedge funds: Improving disclosure. The ASIC Benchmarks and Disclosure Principles covered in this Report are as follows:
ASIC Benchmarks
Further
information
ASIC Benchmark 1: Valuation of assets
Page 2
ASIC Benchmark 2: Periodic reporting
Page 2
ASIC Disclosure Principles
Further
information
ASIC Disclosure Principle 1: Investment strategy
Page 3
ASIC Disclosure Principle 2: Investment manager
Page 4
ASIC Disclosure Principle 3: Fund structure
Page 4
ASIC Disclosure Principle 4: Valuation, location and custody of assets
Page 6
ASIC Disclosure Principle 5: Liquidity
Page 7
ASIC Disclosure Principle 6: Leverage
Page 7
ASIC Disclosure Principle 7: Derivatives
Page 8
ASIC Disclosure Principle 8: Short selling
Page 9
ASIC Disclosure Principle 9: Withdrawals
Page 10
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
01
Disclosure Benchmarks and Disclosure Principles
Benchmark 1: Valuation of assets
This benchmark addresses whether valuations of the fund’s non-exchange traded assets are provided by an
independent administrator or an independent valuation service provider.
This benchmark is met.
The valuation of the Lighthouse Fund’s assets is provided by the Lighthouse Fund’s administrator, GlobeOp Financial
Services (GlobeOp). GlobeOp is unrelated to both Certitude and Lighthouse. Net asset valuations of the
Lighthouse Fund are calculated as at the end of each month. GlobeOp receives securities valuations directly from
independent sources. GlobeOp is responsible for certain day to day operations such as capturing and recording
daily trade and portfolio information for the Lighthouse Fund. The Fund values its investment in the Lighthouse Fund
based on the net asset value (NAV) calculated by GlobeOp.
For further information on the valuation of the Fund’s assets, refer to ‘Unit pricing’ on page 11 of the PDS,
‘Valuation, location and custody of the Fund’s assets’ on page 12 and ‘Custody and valuation of Lighthouse fund
assets’ on page 15.
Benchmark 2: Periodic reporting
This benchmark addresses whether the responsible entity will provide periodic disclosure of certain key
information on an annual and monthly basis.
This benchmark is met.
This following information about the FundDQG, where applicable, the Lighthouse Fund, will be included in the
Fund’s annual disclosure report:
 The actual allocation to each asset type;
 The liquidity profile of the portfolio of assets as at the end of the relevant period;
 The maturity profile of any liabilities at the end of the relevant period;
 The leverage ratio (including leveraged embedded in the assets of the Fund, other than listed equities and
bonds) at the end of the relevant period;
 Details on the derivative counterparties engaged;
 The monthly or annual investment returns over at least a five-year period; and
 Any changes to key service providers since any previous report given to investors, including any change in any
related party status.
The most recent annual disclosure report is made available on our website.
On a monthly basis, the following information will be provided to investors about the Fund and, where applicable,
the Lighthouse Fund:
 The current total net asset value (NAV) of the Fund and the redemption value of a unit in each class of units as
at the date of the NAV. For further information on how the NAV of the Fund is calculated a copy of the Unit
Pricing Policy can be requested from Certitude, free of charge, by contacting us by email at
[email protected] or by phone on 1800 034 402;
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
02
 Any changes in key service providers since any previous report was provided, including any change in related party
status;
 The net return on the Fund’s assets after fees, costs and taxes; and
 Any material change in the Fund’s or the Lighthouse Fund’s risk profile, strategy and investment team.
Disclosure principle 1: Investment strategy
This disclosure principle is intended to ensure that investors are made aware of the details of the investment strategy for
the fund, including the type of strategy, how it works in practice and how risks are managed.
Investment strategy
The Fund was established to provide Australian investors with exposure to the Lighthouse Global Long/Short Fund Limited
(the Lighthouse Fund).
The Fund’s strategy is to access, through the Fund’s investment in the Lighthouse Fund, a portfolio of equity long/
short investment managers (Underlying Managers) with low correlation to traditional equity markets, investing in
managed accounts.
The Lighthouse Fund is managed by Lighthouse Investment Partners, LLC (Lighthouse). The Lighthouse Fund’s
investment strategy is to select specialist Underlying Managers who invest in various global equity long/short
strategies. These strategies are diversified across geographical and industry market segments.
For further information on how Certitude may change the investment strategy of the Fund and what notification will be
provided to investors, please refer to the PDS ‘What does the Fund invest in?’ on page 12 and ‘What does the Lighthouse
Fund invest in, and how? on page 13.
Investment style
Lighthouse is an investment manager dedicated solely to managing funds of hedge funds. Lighthouse offers investment
opportunities which aim to protect, diversify and grow investor assets, while providing more clarity, confidence and
certainty around investments. Lighthouse uses a proprietary managed account platform, built over the last 5 years,
which we consider provides more active portfolio management, better asset control and full transparency.
Investment philosophy
Equity long/short managers invest in equities through both a long equity portfolio and a portfolio of short equity holdings.
The short portfolio may serve as a hedge against the long only positions and may also provide investment returns through
stock selection. Through utilising both a long and a short equity portfolio, managers may generate investment returns via
stock selection, rotation in and out of cash, and timely shifts in market exposures.
The Lighthouse Fund typically utilises an allocation to different equity long/short investment styles, namely:
 Deep value strategies;
 Event driven strategies;
 Trading strategies; and
 Sector focus strategies.
For further information about the underlying investment strategies please refer to the PDS ‘What are the key equity
long/short strategies of the Lighthouse Fund?’ on page 13.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
03
Disclosure principle 2: Investment Manager
This disclosure principle is intended to ensure that investors have the necessary information about the people responsible
for managing the fund’s investments, such as their qualifications and relevant commercial experience, and the
proportion of their time devoted to the hedge fund.
Lighthouse is the Investment Manager of the Lighthouse Fund though which the Fund invests. Lighthouse selects
Underlying Managers, and the Underlying Managers select which securities and other instruments the Lighthouse Fund
should hold.
The Lighthouse Fund has indirect ownership of the individual securities held in managed accounts. The Underlying
Managers have authority to notify Lighthouse of which securities are to be bought and sold.
Lighthouse has transparency into what the individual securities are through both reporting from GlobeOp, and by
maintaining records on its own proprietary system, of managed accounts.
The investment team is responsible for initially selecting Underlying Managers, analysing and assessing their
ongoing performance, and determining whether any of the Underlying Managers should be changed.
For further information in relation to ‘Who makes the decisions for the Lighthouse Fund about its Underlying
Managers’ refer to page 14 of the PDS.
Investors in the Lighthouse Fund have the ability to vote to terminate Lighthouse’s role as the Investment Manager.
Disclosure principle 3: Fund structure
This disclosure principle is intended to ensure that the responsible entity of the hedge fund explains the investment
structures involved, the relationships between the entities in the structure, fees payable to the responsible entity and
investment manager, the jurisdictions involved (if these involve parties offshore), the due diligence performed on
underlying funds, and the related party relationships within the structure.
The Fund’s investment structure
The diagram below shows the key entities involved in the Fund, their relationship to each other, their roles and the flow
of investment money through the Fund as at the date of this document.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
04
Key service providers of the Fund are outlined below:
Key service provider
Scope of services
Jurisdiction
Certitude Global Investments
Limited
Certitude provides investment management products which offer
investors an opportunity to invest in global asset managers whose
investment objective is to deliver outperformance through active
investment management skill. Certitude is the responsible entity of
the Fund.
Australia
Lighthouse
Investment Partners,
LLC
Lighthouse is an investment manager dedicated solely to managing
funds of hedge funds. Lighthouse offers investment opportunities
which aim to protect, diversify and grow investor assets, while
providing more clarity, confidence and certainty around
investments. Lighthouse is headquartered in Palm Beach Gardens,
Florida with offices in New York, Chicago, London and Hong Kong.
United States
Lighthouse Global
Long/Short Fund Limited and
Underlying Managers
The Lighthouse Fund is managed by Lighthouse, who in turn selects
each Underlying Manager of the Lighthouse Fund with the intention
of creating a pool of investments which blend together to create a
diversified portfolio designed to achieve the Lighthouse Fund’s,
investment objective. Lighthouse selects approximately 20-30 core
Underlying Managers to manage portions of the Lighthouse Fund’s
portfolio in accordance with defined investment strategies and
parameters.
GlobeOp Financial Services
Lighthouse appointed GlobeOp as administrator of the Lighthouse
Fund. GlobeOp is one of the world’s largest administrators with
core competencies in private equity, hedge funds, funds of funds
and managed accounts. GlobeOp has been providing outsourcing
and fund administration services since 1995.
United States
Broker
As a “hedge fund of funds” adviser, Lighthouse does not direct
brokerage transactions. Underlying Managers who enter into an
agreement are required to arrange the execution of all trading
orders. Lighthouse reviews the brokerage practices of the Underlying
Managers. Lighthouse can select the prime brokers and swap
counterparties of each segregated portfolio within the Fund. The
selection process takes into consideration factors such as
performance pricing, operational capabilities and financial stability.
United States
National Australia Bank
Certitude has appointed National Australia Bank Limited (NAB) as the
custodian of the assets of the Fund. NAB’s role is limited to holding
the assets of the Fund. Certitude regularly monitors NAB’s
performance against agreed service standards, as set out in a service
level agreement. NAB has no supervisory role in relation to the
operation of the Fund.
Australia
PricewaterhouseCoopers
PricewaterhouseCoopers has been appointed to act as the
independent auditors for the Lighthouse Fund.
KPMG
Certitude has appointed KPMG to provide audit services to the
Fund.
ABN 25 082 852 364
AFSL 246747
Ironbark Asset Management Pty Certitude is a subsidiary of IBAM. IBAM is an independent provider
Ltd
of asset management solutions. Ironbark seeks to build investment
solutions that relevant and meet the needs of its distributors and
investors.
Cayman Islands
United States
Australia
Australia
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
05
The Lighthouse Fund is not required to appoint an external custodian to hold its assets. Lighthouse as the Investment
Manager has appointed an independent administrator to manage the day to day operations of the Lighthouse Fund.
The Lighthouse Fund has the ability to terminate Lighthouse’s role as an Investment Manager and appoint an
alternative investments adviser to manage the Lighthouse Fund in line with its current investment strategy.
Disclosure principle 4: Valuation, location and custody of assets
This disclosure principle is intended to ensure that Certitude discloses the types of assets held, where they are
located, how they are valued and the custodial arrangements.
Valuation policy of the Fund
The Fund’s assets and liabilities are valued on the last day of each month. The Fund’s assets comprise of shares in the
Lighthouse Fund and cash.
GlobeOp is responsible for certain day to day administrative services required in connection with the Lighthouse Fund
and certain underlying managed account operations, including but not limited to capturing and recording daily trade and
portfolio information at the underlying managed account level, independent regular reconciliation of portfolio data to
counterparties at the underlying managed account level, maintaining the Lighthouse Fund’s register of investors,
independent valuation of each position held by the Lighthouse Fund and for calculating and distributing prices for the
Lighthouse Fund at the end of each month. The Fund values its shares in the Lighthouse Fund based on the prices
provided by GlobeOp.
Any other asset such as cash and cash receivables are valued at recoverable value.
Any income entitlements, cash at bank, and any amounts of Goods and Services Tax (GST) recoverable for the Fund
from the Australian Taxation Office (ATO) are also included in asset values used to calculate the investment and
withdrawal unit price.
In general, for unit pricing purposes, liabilities are valued at cost. Liabilities also include an accrual for management
costs (which include a performance fee if payable) and for costs (if any) that an investor would ordinarily incur
when investing in the Fund’s underlying assets.
Refer to page 12 of the PDS ‘Valuation, location and custody of the Lighthouse Fund’s assets’ for further information.
Regional allocation of assets
The Lighthouse Fund has a globally diversified strategy, invests in securities from throughout the world in both developed
and emerging markets. The Lighthouse Fund’s allocation of assets based on the geographical region is set out in the table
below:
Region
Minimum Allocation
Maximum Allocation
Developed Americas
30%
75%
Developed Europe
10%
35%
Developed Asia
5%
35%
Emerging markets
0%
25%
Refer to page 12 of the PDS ‘Valuation, location and custody of the Lighthouse Fund’s assets’ for further information.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
06
Asset allocation of the Lighthouse Fund
The Lighthouse Fund’s investment strategy is to select specialist Underlying Managers who invest in various global equity
long/short strategies to achieve diversification. These strategies are diversified across geographical and industry market
segments.
The Lighthouse Fund typically utilises an allocation of 4 different equity long/short investment styles. The following table
provides further information in relation to the strategy guidelines:
Minimum Allocation
Maximum Allocation
Trading
10%
40%
Sector Focus
20%
60%
Deep Value
10%
40%
Event Driven
10%
40%
Strategy
Refer to page 13 of the PDS for further information in relation to ‘What are the key equity long/short strategies of
the Lighthouse Fund?’.
Disclosure principle 5: Liquidity
This disclosure principle is intended to ensure that investors are made aware of the fund’s ability to realise its assets in a
timely manner and the risks of illiquid classes of assets.
The Fund is able to redeem its shares in the Lighthouse Fund at the end of each month as long as it provides the required
notice to Lighthouse. Lighthouse manages the Lighthouse Fund for consistency between the liquidity of the assets
managed by the Underlying Managers and the liquidity offered to the Lighthouse Fund’s investors.
The Lighthouse Fund’s ability to meet redemption requests from the Fund (as well as from other investors in the
Lighthouse Fund) will depend upon its ability to redeem or realise its investments.
Lighthouse may suspend redemptions in certain circumstances, delay payment of redemption proceeds or redemptions
may be satisfied through a transfer of the Lighthouse Fund’s assets rather than payment of cash. If any of these
circumstances occur, we may, subject to the Fund Constitution:
 change the frequency of withdrawals, the notice period for withdrawal requests or both, meaning you will have less
opportunity to redeem your units;
 suspend withdrawals; or
 be required to treat the Fund as non-liquid, meaning you will only be able to redeem units in accordance with a
withdrawal offer made by us and we will be under no obligation to make withdrawal offers.
Refer to page 17 of the PDS for further information in relation to ‘Liquidity risk’.
Disclosure principle 6: Leverage
This disclosure principle is intended to ensure that investors are made aware of the maximum anticipated level of
leverage of the fund (including leverage embedded in the assets of the fund).
The Underlying Managers may invest in securities that incorporate leverage. The level of leverage, profile of
securities that are being leveraged and the term and structure of any leverage is monitored by Lighthouse.
7
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
07
The Fund does not use direct leverage or borrowings as part of its investment strategy. The Fund has the ability to
undertake short-term borrowing in order to manage investor withdrawals and other payments, however this would only
be utilised in exceptional circumstances. The underlying investments of the Lighthouse Fund may incorporate leverage
and the aggregate level of leverage is limited to a maximum of 4 times the net asset value of the Lighthouse Fund.
However, historically, the aggregate level of leverage has been 2 times the net asset value of the Lighthouse Fund.
The Underlying Managers may invest in securities that incorporate leverage. The Underlying Managers may use derivatives
or borrow to create gearing/leverage, which at times may be substantial. Investment returns may be leveraged with
options, swaps, forwards and other derivative instruments which can increase the magnitude of gains, but also losses. The
level of leverage, profile of securities that are being leveraged and the term and structure of any leverage is monitored by
Lighthouse. The amount of gearing depends on the Underlying Manager’s investment strategy. The Lighthouse Fund on
aggregate may have a maximum gross exposure up to 275% (long positions plus short positions) (i.e. for every $1 of NAV
the combined value of the Lighthouse Fund’s aggregate long and short positions may be up to $2.75) however the net
exposure is restricted to 60% (long positions minus short positions (i.e. for every $1 of NAV the combined value of the
Lighthouse Fund’s aggregate long positions minus short positions may be up to $0.60).
As an example, assuming that an Underlying Manager has $1 of capital, borrows $0.50 and invests the full $1.50 in a
portfolio of stocks (i.e. the Underlying Manager is long $1.50). At the same time, the Underlying Manager sells short $1.25
of stocks.
Gross Leverage
=
(Long position + Short position) / Net Asset Value7
Gross Market exposure
=
($1.50 + $1.25) / $1 =
Net Leverage
=
(Long position – Short position) / Net Asset Value
Net Market exposure
=
($1.50 - $1.25) / $1
=
275%
25%
Please note that the above examples have been provided for reference purposes only. Any assumptions underlying
these examples are hypothetical only.
Where underlying investments are leveraged, the Lighthouse Fund’s assets may be pledged as collateral and if the
Lighthouse Fund defaults on its obligations under such instruments, the counterparty to the instrument may be entitled to
some or all of those assets as a result of the default.
Refer to page 17 of the PDS for further information in relation to ‘Debt and leverage risk’.
Disclosure principle 7: Derivatives
This disclosure principle is intended to ensure that investors are made aware of the purpose and types of derivatives used by
the responsible entity or investment manager, and the associated risks.
The Underlying Manager may invest in derivative instruments such as options, swaps, futures and warrants where these
derivatives are consistent with the overall investment strategy of the Lighthouse Fund, and within agreed guidelines and
restrictions. Derivatives will include both exchange traded and over the counter (‘OTC’) instruments.
In addition, the particular share class of the Lighthouse Fund held by the Fund is the AUD denominated Class C shares. The
Lighthouse Fund utilises forward foreign exchange contracts in order to hedge the foreign exchange risk which arises on
the USD exposure of the Lighthouse Fund, when translating the Class C share assets into AUD.
Refer to page 17 of the PDS in relation to ‘Currency risk’ and ‘Derivatives risk’.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
08
Disclosure principle 8: Short selling
This disclosure principle is intended to ensure that investors are made aware of how short selling may be used as part of
the investment strategy, and of the associated risks and costs of short selling.
The Lighthouse Fund and Underlying Managers may borrow or lend securities as part of their investment strategies. This
investment technique is referred to as short selling. Short selling occurs when the Lighthouse Fund ‘borrows’ a share
from a securities lender and sells it on the share market (known as a short position). When the Lighthouse Fund returns
the borrowed share to the lender, it will buy the share from the share market. If the share has dropped in price, the
Lighthouse Fund will benefit, as it buys the share at a lower price than it sold it. If the share price has risen, the Lighthouse
Fund will have to buy the share at a higher price than it sold it, thereby making a loss. Short positions on particular stocks
are taken when it is expected that these stocks will fall in price.
Below is an example which outlines the potential gains and losses that can result from short selling:
Potential gain from short selling1
Short sale of shares
August, an investor borrows 200 ABC shares and sells @ $180 per share
$36,000
September, an investor buys back 200 ABC shares @ $130 per share Net
$26,000
Profit
$10,000
Potential loss from short selling
Short sale of shares
August, an investor borrows 200 ABC shares and sells @ $180 per share
$36,000
September, an investor buys back 200 ABC shares @ $230 per share
($46,000)
Net loss
($10,000)
1
The fees incurred from borrowing the assets have not been taken into consideration in the above example.
Refer to page 18 of the PDS for further information in relation to ‘Short selling risk’.
Disclosure principle 9: Withdrawals
This disclosure principle is intended to ensure that investors are made aware of the circumstances in which the
responsible entity of the hedge fund allows withdrawals and how this might change.
The Fund allows withdrawals on the last day of each month (Withdrawal Day). Certitude requires the requests to be
received by 4.00pm (Sydney time) on a business day at least 30 days before the requested Withdrawal Day. Investors will
generally receive the withdrawal proceeds within 3 to 6 weeks after the Withdrawal Day.
Indirect investors are those who have elected to invest into the Fund through an Investor Directed Portfolio Service
('IDPS'), such as a master trust, wrap account or investor directed portfolio service. Different terms may apply and
the relevant disclosure document for that IDPS should be read. Refer to ‘Investing via a Portfolio Service’ on page
11 of the PDS.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
09
The Fund’s Constitution governs the way that Certitude may process your withdrawal request. The Constitution has
entitled Certitude to set minimum redemption amounts and a minimum number of units to be held by the investor.
Where a withdrawal request is made for less than the minimum redemption amount Certitude may deem the request a
redemption of the minimum amount or minimum number of units. In the event where a withdrawal request falls below
the minimum unit balance Certitude may treat the request as a full withdrawal. Certitude has currently elected not to
invoke this entitlement. Extreme market conditions can cause difficulties or delays to the Fund being able to sell its assets
or requiring it to freeze withdrawals. These circumstances could result in it taking an extended period of time before you
are able to withdraw your investment, or it taking longer than usual for you to receive your withdrawal proceeds. Refer to
page 10 of the PDS ‘Access to funds’ for further information on withdrawal arrangements. In the event there are any
material changes to withdrawal rights, investors will be notified through our website www.ironbarkam.com.
Please contact Client Services on 1800 034 402 or by email to [email protected] if you would like further information on
the Fund.
Ironbark LHP Global Long/Short Fund | ASIC Benchmarks and Disclosure Principles Report
10