Half-yearly report
(Thomson Reuters ONE) - TAPESTRY INVESTMENT COMPANY PCC LIMITED TAPESTRY INVESTMENT COMPANY - MULTI-STRATEGY (GBP)ANNOUNCEMENT OF RESULTSFor the period from 1 January 2009 to 30 June 2009The financial information set out in the announcement does notconstitute the Company's half yearly report for the period from 1January 2009 to 30 June 2009, but is derived from that report. Thehalf yearly report and unaudited financial statements from 1 January2009 to 30 June 2009 will be delivered to Shareholders duringSeptember 2009.The half yearly report and unaudited financial statements have beenprepared in accordance with International Financial ReportingStandards. Whilst the financial information included in thispreliminary announcement has been computed in accordance withInternational Financial Reporting Standards, this announcement doesnot itself contain sufficient information to comply withInternational Financial Reporting Standards.The Directors have not declared an interim dividend.Kleinwort Benson (Channel Islands) Funds Services LimitedCompany SecretaryTelephone number: 01481 727111Fax number: 01481 72831721 August 2009Dorey CourtAdmiral ParkSt Peter PortGuernseyGY1 3BGChairman's StatementThe first half of 2009 has seen a degree of stability (if notnormality) return to equity markets and whilst it is clear that weare not out of the woods yet in respect of the global economiccrisis, I am pleased to report that your Company has performed wellduring this time and has made up some of the ground lost in 2008.NAV performance has increased by 6.3% from 89.41p on 31 December 2008to 95.08p on 30 June 2009. The Company had cash balances of £18.6mas at 30 June compared to borrowings of £18.5m as at 31 December2008. This is principally attributable to profits arising from theCompany's currency hedge during this period as Sterling strengthenedagainst the US Dollar (from US Dollar 1.44 per GBP on 31 December2008 to 1.65 on 30 June 2009). Although the discount to NAV at whichthe Company's shares trade is currently in the region of 14%, therehas been a marked improvement since 31 December when the discount was35.95% and the current discount is line with the Company's peer groupalbeit perhaps not reflecting the size of the cash position.During the first half of 2009, the Company bought in 4,800,000shares. There have been no further buybacks since 30 April, whenyour Board announced that, following consultations with the Company'smajor shareholders, it had decided not to proceed with the redemptionoffer that had been indicatively proposed in December last year andthat instead, the Board was considering options available to theCompany to enable shareholders to realise their investments. Thesedeliberations brought to light a potential offer for the Company byRamius, the Company's investment manager, which your Board announcedon 2 July 2009. As yet, no offer has been forthcoming andaccordingly, your Board published a circular on 21 August 2009 to putforward proposals for a managed wind-down of the Company in orderthat shareholders can have the option to realise their investments inthe Company as soon as practicable.M CarvillChairman21 August 2009INTERIM MANAGEMENT REPORTPerformance Year to Date through 30 June 2009 and since LaunchThe net performance of the Company through June 2009 is 6.0%(annualised 12.4% vs. annualised 3 month Sterling LIBOR of 1.6%) fromJanuary 2009, -18.1% (annualised -18.1% vs. annualised 3 monthSterling LIBOR of 3.3%) for the prior 12 months, and -0.7%(annualised -0.7% vs. annualised 3 month Sterling LIBOR of 4.86%)since launch in March 2005.OverviewTo put the first half of 2009 into the proper perspective requiresone to also consider the nature and path of the financial storm of2008. The significant reduction in risk capital and leveragemultiplier that together supported trillions of dollars in assetsresulted in clearing prices of assets at liquidation levels where theunlevered, often cross over buyer, would step in. Not only was adirectional exposure to such assets punished but also a hedgedapproach as a result of the significant unpredictability of assetprice correlations with liquidation pressure and short squeezes asopposed to any fundamental rationale driving asset prices.The first quarter of 2009 took all of this information and priced itinto equities which moved lower as future earnings estimates adjustedto the new world order. Credit markets however, often portrayed asthe 'sacrificial lamb' of the deleveraging process, had time to catchits breath as investors gauged whether the liquidation pressure of2008 appropriately or excessively priced the deterioratingfundamentals into these securities. Global financial products ofrates and currencies became more and more the tools and toys ofpolicy makers as the drive to put a floor under economies and stake aclaim to the shrinking pool of global demand.The second quarter took its lead from the turn in equity markets thattook place on March the 9th after Vikram Pandit, CEO of Citigroupcommented that Citigroup was having its best quarter since 2007.Interestingly it was the same day that the American Association ofIndividual Investors admitted that their most recent survey had thehighest ever bearish view since they began collecting data in 1987.The second quarter continued to be influenced (sometimes overly so)by the release of each economic data point, corporate profitannouncement and government programs designed to stimulate orsocialize potential economic black holes.The epicenter of the economic storm is a global inventory adjustmentthat has never been witnessed before. Industrial production andexport data coming out of exporting nations like Germany, Taiwan andJapan lay bare the painful extent of this adjustment. The source ofthe inventory adjustment is driven by both an actual and anticipateddecline in global aggregate demand as an over levered Anglo Saxonconsumer repair their balance sheet with the result being an increasein savings rates. Corporations have added to this negative adjustmentin that they have responded by cutting capex, slashing fixed costsand reducing their work force all of which have helped buffer thedeclines in corporate profits but have added to the economicheadwinds facing the consumer as income levels decline andunemployment rises in the US and European economies specifically. Theresponse by government and central banks has been both conventionaland unconventional monetary policy, increased government stimulusplans and a vast array of programs and bail outs. The size and scaleof Government responses from the US to China will leave a footprintboth favorable and unfavorable. As with most things in life we willfirst see the favorable footprints or at least be told of them bytheir sponsors but over time the less favorable marks of thisrequired intervention will begin to be revealed.The debate now rages on as to how the World will look like post thisinventory adjustment and in fact post an anticipated mini cyclicalrestocking as inventory levels have been cut so drastically andrecover from the lows. Economists and investment professionals havethrown most letters of the alphabet at the problem in trying topredict the shape of future US and Global economic growth or furtherdeclines. Predictions range from V-shape, L, U, W or even andinverted-square root sign. Unfortunately one engine of global growth,the US consumer, lives and works in a predominantly service economyand therefore inventory restocking will be less relevant resulting ina slower, more muted recovery in the US. WhateverInterim Management Report (continued)Overview (continued)the shape and form of the recovery there will be some rebalance ofprevious imbalances between developed and developing economies withChina by example currently representing 12.6% of global GDP but 40%of 2010 Global GDP growth. The potential for real and lastingdecoupling in both economic growth and financial asset returnsbetween specific emerging versus developed markets followed on fromthe first quarter and continued to be a theme in the second quarter.Asset prices reached a point of stability earlier this year whenliquidations led by de-leveraging slowed and finally stopped. Therecovery in many risk assets from the low of March 9th is now, forthe time being, linked in a more normal fashion to economic stabilityand recovery. As a result, once the correct letter of the alphabeti.e. V, L, U or W has been assigned to the world we will then livein, it will become clearer whether the strong asset rally in thesecond quarter and the start of the third quarter 2009 was 'too much,too fast' or merely the beginning of a return to what Mohammed ElErian, CEO /Co-CIO of PIMCO, refers to as the 'new normal'.Strategy ReviewCredit-BasedThe first quarter was a choppy interval in the credit markets;however spreads were generically tighter across most risky assetclasses. The overall tone of the credit markets were helped by thecessation of technical related pressures as well and the variousgovernment initiatives aimed at bolstering the financial system. Thetop performing segment of the market was the leveraged loan spacewhich entered the New Year in completely unchartered territory havinglost 28% over the course of 2008. The loan market ralliedapproximately 8% during the 1st quarter on back of little to nosupply, demand resulting from prepayments, company sponsoredbuy-backs, cross-over interest from high yield accounts andprime-fund inflows. The high yield market also rallied with the loanmarket but to a lesser extent, registering a 5% gain. Notableunderperformers during the quarter were primarily in the structuredcredit arena as the non-agency RMBS, CMBS and CLO liability marketsall traded down on rating agency downgrades, declining fundamentalsand technical pressures. Near the end of the quarter as detailsemerged about the expansion of the TALF facility and the newgovernment sponsored Public-Private-Investment-Plan (PPIP) theseareas of the market recovered somewhat.The second quarter represented the greatest rally in the history ofthe credit markets as spread products rallied dramatically from theirdepressed values in the beginning of March. The market was bolsteredby heavy inflows into credit oriented mutual funds as investors beganmoving money out of money market accounts into risky assets. Thehigh yield and leveraged loan markets were the primary beneficiariesof this trend as they were up 22.5% and 20.4% respectively during thequarter. With this move, the average price of the JPM High YieldIndex rose nearly 19 points since the beginning of the year. Therally began in higher quality credits but later spread to morespeculative issuers as risk appetites improved. The tightening ofspreads and flow of capital into these areas enabled companies toraise significant capital via the new issue market. The reopening ofthe primary market coupled with the ability of firms to get amendmentrelief and the execution of debt exchanges eased default concernswhich fed the rally further. By the end of the quarter, corporatecredit spreads returned to levels witnessed before the LehmanBrothers bankruptcy in September 2008.Credit managers have generally had a long bias and as a resultperformance has been strong. However, managers are circumspectabout the risks in the market and are generally taking exposuresdown. The consensus is that the credit markets are no longergenerically cheap, it has become exceptionally name specific at thisjuncture with greater dispersion expected and as a result betterrelative valuation opportunities over outright directionality. Onearea of the market where managers are seeing opportunity is in thenon-agency RMBS market. This area has lagged the rally in riskassets meaningfully over the course of 2009 as the housing marketdeteriorated further and downgrades resulted in continued forcedselling from ratings constrained investors.Interim Management Report (continued)Strategy Review (continued)Event-DrivenThe first half of 2009 was modestly positive for managers pursingmerger arbitrage. Several high profile deals closed and there werefew major deal terminations. Annualized deal spreads tightened overthe first six months as hedge funds became more fully invested afterexposures bottomed out earlier in the year. Hedge fund managers havebroadly selected the relative safety and liquidity of the largerdeals (Pfizer/Wyeth and Merck/Schering) to get invested.Currently, there are still significant headwinds facing the strategy.US deal flow, in terms of the number of announced deals and dealvalue, has been anemic. The number of announced deals during thefirst six months (33) and deal value ($172b) was at 2003 levels.There are a number of drivers causing weakness in merger activity,the two most pertinent being credit market constraints and macroeconomic uncertainty. While credit markets improved and creditspreads contracted, the availability of credit remains constrainedand the costs steep. Macro economic uncertainty has also influencedactivity. Many companies have reduced visibility into their businessdue to the climate which has led to uncertainty on part of potentialbuyers.Shareholder activists experienced strong performance during the firsthalf of the year, particularly in the second quarter. Activistperformance during the quarter was beta driven rather than "valuerealization" driven. Activists tend to be long-only therefore equitymarket performance drove a large part of the performance.In distressed / bankruptcy situations, strong performance was seenmore as a result of the broad based rally in credit as opposed to theperceived improvement in the recovery value of businesses that hadfiled or may file for bankruptcy. The default rate surged from4.65% at the beginning of the year to nearly 10% by the end of Juneas large bellwether issuers such as Charter Communications, Lyondell,R.H. Donnelly and General Motors filed for bankruptcy protection. Interms of the migration of credit toward default nearly $100 billionof investment grade debt was downgraded to high yield and the amountof down-graded corporate debt versus upgraded debt has been trendingat nearly 4X thus far in 2009. The second quarter did however witnessa slow down in filings as distressed debt for equity exchange offersincreased out of court.The fact that companies had greater access to the capital markets andthat fund flows into high yield products increased significantly hasled to companies issuing equity, convertible bonds and bonds so as toplug financing holes or take out more restrictive bank debt wherecovenants would have pushed them to potentially file. This has hadthe result of extending the maturity profile facing companies in theUS and probably push out the peak in the default cycle.The maturity schedule for bonds and loans in the US now points to anacceleration of refinancing activity starting in 2011 with the creditmarkets needing to absorb upwards of $1 trillion in high yieldrefinancings over the coming five years. A patient approach to thisdistressed cycle will be important in any asset allocation decisionso as to take into account the growing levels of debt still to matureand the amount of uncertainty coming from the economic outlook thatdirectly influences potential recovery values.Interim Management Report (continued)Strategy Review (continued)Fixed Income ArbitrageA bright spot for fixed income managers, apart from aggressivecentral bank interest rate cuts, is the vast government supply ofbonds that has come to market and will continue to come to market.While highly levered, crowded, mean reverting, longer duration fixedincome arbitrage strategies are no longer in vogue, shorter-term,tactical relative value strategies with moderate leverage have beenprofitable in 2009. Some examples include trades that take advantageof distortions resulting from quantitative easing and government bondsupply/underwriting, basis trades (bonds vs. futures), butterflytrades, and mispricings in inflation curves. Moreover, with bankproprietary desks largely out of the RV fixed income business, largemulti strategy and macro funds allocating away, and only a handful ofsingle strategy funds focusing on the space, those that do remainindeed are confronting a very inefficient, uncrowded and thuspotentially profitable market.The fixed income opportunity set broadened with returns beinggenerated from relative value and trading styles. Relative value andtrading orientated styles benefited from increased stability relatingto risk capital and leverage supporting relative value trades as wellas uncertainty over a change in the interest rate cycle, potentiallyhigher inflation, record government issuance and governmentintervention via quantitative easing have all increased the tradingopportunities within fixed income markets.There continued to be a healthy level of volatility and stable levelsof liquidity in fixed income markets to enable managers to tradeprofitably. The opportunity set for trading styles remains robust asuncertainty grows over a potential change in the interest rate cycle,the outlook for higher inflation, record government issuance andgovernment intervention via quantitative easing.With unprecedented levels of government intervention in both thesupply and demand side of global bond markets we continue to have acautious approach where relative value managers deploy significantleverage and potentially expose themselves to parts of the globalbond market that may become increasingly illiquid over a short periodof time and are financed with very short term funding.Trading-oriented managers potentially introduce greater interest ratedirectionality into the portfolio but are better positioned to takeadvantage of some of the opportunities currently available whilstremaining more liquid and better positioned to manage risk.Hedged EquityDuring the first quarter of 2009 there was more differentiation amongstocks as long/short equity managers successfully found goodopportunities to invest in both long and short as dispersionincreased and realized volatility remained high. As a result, ahedged approach as well as trading styles generated positive absoluteand relative performance over equity markets. Negative investorsentiment reached a new cycle trough during early March, which wasproceeded by the S&P 500 bouncing 23% in an extremely quick thirteentrading days, a feat not seen since the late 1930s. A closer lookshows that the further a stock declined leading into the trough, thegreater the advance through the end of the quarter. Managersgenerally were not able to catch this inflection point and started tofall behind as many managers remain cautious in their gross and netexposures and retained their long tilt towards more defensive sectorsof the economy.In the second quarter, the market, as measured by the S&P 500 Index,was up 15.6% over the quarter contributing to managers gross longexposure whilst the shorts were impacted more dramatically than thebroad based market performance would suggest. By way of example the50 stocks within the S&P 500 Index with the highest levels of shortinterest as a percentage of free float returned on average 38.8%during the quarter or more than twice the index itself. Whenscreening for companies with high balance sheet leverage this groupof companies rallied 200% over the quarter as a combination ofInterim Management Report (continued)Strategy Review (continued)short covering and an improvement in the fundamentals facing thesecompanies as they became increasingly able to tap the capital marketand issue new equity and debt.Given the environment in the second quarter managers were unable toextract returns from both their long and short portfolio as was thecase of the first quarter as the composition and size of the grossshort book became the most important driver of returns. This resultedin lower net and hedged managers underperforming both directional andtrading orientated styles.Please see attached document for the chart.*Strategy and total portfolio contribution are calculated gross ofmanagement, incentive and any other fees and expenses.Interim Management Report (continued)Strategy Review (continued)As always, it is worth restating that the Company relies on a capitalmarkets-based philosophy to investing which involves assessing thecurrent market environment as well as the opportunity set and factorsthat affect each asset class and hedge fund strategy. This pragmatic,forward-looking approach is a key driver of the sub-managerselection, risk management and portfolio construction efforts.While overall portfolio performance is also dependent upon theeconomic, financial and macro environment, we believe the Companycontinues to be positioned to generate attractive risk-adjustedreturns.Risk and UncertaintyMarket price, Liquidity and Credit risk are the main risks associatedwith the Company. The Company has established policies to monitorthese risks which are reviewed regularly. Further information on theprincipal long-term risks and uncertainties of the Company isincluded in the latest annual report, starting on page 39. Other keyrisks identified by the Board that could affect the Company'sperformance are as follows:Foreign exchange risk: The Company is exposed to fluctuations inexchange rates, as it invests in underlying funds which arepredominantly denominated in US Dollars for terms not exceeding 3months. In order to reduce the impact of currency fluctuations, theCompany enters into forward foreign exchange contracts traded overthe counter to hedge specific foreign currency payments. TheDirectors regularly monitor the effectiveness of the Company'shedging policy.Gearing risk: The use of the 364 day Revolving Credit Facilityestablished with Bayerische Hypo-und Vereinsbank AG increases theCompany's potential exposure to gearing risk. The exposure to gearingrisk is mitigated due to the fact that any borrowing is short term innature and will not exceed 25 per cent. of the Company's Net AssetValue.Regulatory risk: The Company operates in a complicated regulatoryenvironment and faces a number of regulatory risks. Breaches ofregulations, such as the UK Listing Authority Listing Rules and theCompanies (Guernsey) Law, 2008, could lead to a number of seriousoutcomes and reputational damage. The Board monitors compliance withregulations by regular review of internal control reports.Interest rate risk: The Company holds no interest bearing investmentsat the period end, therefore interest rate risk is limited to theextent of the bank balances. The Directors consider the impact ofinterest rate risk not to be material to the Company.In the view of the Board, these principal risks and uncertainties areas applicable to the remaining six months of the year as they were tothe six months under review.Related Party TransactionsAsides from those related party transactions already highlighted innotes 4 and 15 to these financial statements there are no otherrelated party transactions which have had a material effect on thecompany during the first six months of the year. Furthermore thereare no changes in the related party transactions highlighted in notes5 and 18 of the latest annual report.Condensed Income Statement (Unaudited)For the period 1 January 2009 to 30 June 2009with comparatives for the period 1 January 2008 to 30 June 2008 01.01.09 to 01.01.08 to 30.06.09 30.06.08 £ £Net realised gains/(losses) on financialassets and liabilities held at fair value 12,316,415 (2,547,973)through profit or lossNet change in unrealised(depreciation)/appreciation on financial (6,693,854) 572,495assets and liabilities held at fair valuethrough profit or lossNet foreign exchange (loss)/gain (932,954) 39,735Income 15,956 45,294Expenses:-Performance fee - -Management fee (155,632) (214,395)Investment manager's fee (233,279) (320,946)Custodian fee (21,963) (26,997)Registrar fees (9,215) (6,080)Directors' fees and expenses (53,352) (32,707)Legal fees (80,110) (77,479)Auditors' remuneration (11,794) (9,218)Sundry expenses (358,616) (25,507)Net loss on ordinary activities before (908,005) (668,035)finance costsFinance costs (46,012) (104,048)Net loss on ordinary activities after (954,017) (772,083)finance costsIncrease/(decrease) in net assetsattributable to holders ofcellular shares 3,735,590 (2,707,826)Return/(loss) per cellular share 4.38p (2.92p)Condensed Statement of changes in Net Assets attributable to holdersof Cellular sharesfor the period ended 30 June 2009 (unaudited) 01.01.09 to 01.01.08 to 30.06.09 31.12.08 £ £Net Assets attributable to holders of 79,013,842 111,394,954cellular shares at 1 JanuaryCost of shares purchased for Treasury (3,281,000) (5,470,483)Increase/(decrease) in Net Assetsattributable to holders of cellular shares (26,910,629)from operations (see above) 3,735,590Net Assets attributable to holders ofcellular shares at the end of the 79,468,432 79,013,842period/yearCondensed Statement of changes in Cellular shares for the periodended 30 June 2009 (unaudited) Own shares held Redeemable Total shares in in Treasury participating Issue preference sharesAs at 1 January2009 5,218,010 88,376,840 93,594,850Sharespurchased forTreasury 4,800,000 (4,800,000) -Sharescancelled fromTreasury (3,000,000) - (3,000,000)As at 30 June 7,018,010 83,576,840 90,594,8502009Condensed Statement of changes in Cellular shares for the year ended31 December 2008 (audited) Own shares held Redeemable Total shares in in Treasury participating Issue preference sharesAs at 1 January - 93,594,850 93,594,8502008Shares 5,218,010 (5,218,010)purchased for -TreasuryAs at 31 5,218,010 88,376,840 93,594,850December 2008Condensed Balance Sheet (Unaudited)At 30 June 2009with comparatives as at 31 December 2008 30.06.09 31.12.08 £ £AssetsFinancial assets at fair value throughprofit or loss 58,315,396 92,519,689Due from brokers 3,295,535 8,322,180Receivables 71 357,172Cash at bank 18,553,500 81,569Total assets 80,164,502 101,280,610Liabilities (excluding net assetsattributable to holders of cellular andmanagement shares)Payables 466,479 403,500Unrealised loss on forward foreign exchangecontracts 229,589 3,406,777Borrowings - 18,456,489 696,068 22,266,766Net assets attributable to the holders ofcellular shares 79,468,432 79,013,842Management shares 2 2Total liabilities (including amounts due toshareholders) 80,164,502 101,280,610Number of cellular sharesin issue 83,576,840 88,376,840Net asset value per cellularshare 95.08p 89.41pCondensed Cash Flow Statement (Unaudited)For the period 1 January 2009 to 30 June 2009with comparatives for the period 1 January 2008 to 30 June 2008 01.01.09 to 01.01.08 to 30.06.09 30.06.08 £ £Cash flows from operating activitiesNet loss after finance costs (954,017) (772,083)Purchases of investments (13,289,026) (29,404,820)Sales of investments 49,997,530 26,613,825Decrease in receivables 357,101 8,246,756Increase/(decrease) in payables 62,979 (394,135)Net cash inflow from operating activities 36,174,567 4,289,543Cash flows from financing activitiesCellular shares purchased for Treasury (3,281,000) (4,055,945)(Decrease)/increase in borrowings (18,456,489) 6,129,192Net cash (outflow)/inflow from financing (21,737,489) 2,073,247activitiesCash flows from investing activitiesNet receipts/(payments) on settlement offorward foreign currency contracts 4,967,807 (4,061,001)Net cash inflow from investing activities 4,967,807 (4,061,001)Net increase in cash and cash equivalents 19,404,885 2,301,789Cash and cash equivalents at beginning of 81,569 (995,130)the periodEffect of foreign exchange rate changes (932,954) 39,735Cash and cash equivalents at end of the 18,553,500 1,346,394period---END OF MESSAGE---http://hugin.info/141351/R/1337046/318399.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 25.08.2009 - 19:16 Uhr
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