We see risk management and our responsibility to our clients as central to everything that we do. We understand that rewards often come by taking risks but risks can be managed to deliver powerful reward outcomes.
The Fund will invest in securities of companies listed on a number of securities exchanges outside Australia. The economies of the countries where those companies carry on business will differ, at times favourably, on indicators such as the rate of growth the gross national product, the rate of inflation, capital reinvestment, balance of payments and the rate of inflation.
In a number of countries government activities may have a significant effect on economic conditions, including the possibility of nationalisation, expropriation, and confiscatory taxation, all of which may affect the prices and yields of securities held in the portfolio of the Fund.
Derivatives may be used to gain or reduce exposure to markets and to manage risk. Use of derivatives requires the Manager to understand the underlying instrument as well as the derivative itself. When the movements and the prices of the derivative instrument and the underlying investment which the Fund Manager wishes to hedge do not correlate perfectly the Fund is exposed to a risk of loss. Derivative instruments, particularly when traded in large amounts, may not be liquid in all circumstances and so the Manager may not be able to close out a position without incurring a loss.
[Leverage incurred by trading in derivative instruments]
Options are substantial proportion of the overall derivatives markets. The risk of purchasing options is limited to the amount paid for the option while the risk incurred in selling options is the same as selling the underlying contract.
Dealing in warrants exposes the Fund to risk greater than dealing in the securities related to them. Warrants are leverage instruments to a relatively small movement in the process in the related security may result in disproportionately large movement in the process of the warrants. This movement may be for better or worse.
The instruments and contracts used in hedging activities intended to minimise the risk of loss from future movements in the prices of the investments of the Fund may themselves expose the Fund to the risk of loss. Short selling, which involves the Fund selling a security which it does not own will generate a profit when the sale of securities sold short declines and losses (which are, in theory unlimited) when the prices of those securities increases.
Also, the volume of securities which may be borrowed for the purpose of settling transactions in securities which are sold short fluctuates. When a securities lender requires the borrowed securities to be returned, and no alternative lender is willing to lend securities, the Fund is exposed to the risk of losses.
Trading in futures requires the Fund to deposit only small margins and so the Fund’s positions will be highly leveraged. When the market moves against the Fund’s position under a futures contract, the broker may require the Fund to deposit additional margin funds. If the Fund is unable to do so, the Fund may need to liquidate its position at a loss. When a futures or options contract is denominated in a currency other than Australian dollars, the exposure when converted to Australian dollars will be affected by fluctuations in foreign exchange rates between the points in time when the order is placed and the contract is liquidated or exercised.
The value of the assets of the Fund may be affected by changes in investor sentiment, political events, interest rates and exchange rates.
Your Units are denominated in Australian dollars while many of the assets of the Fund will be denominated in other currencies. Fluctuations in exchange rate, caused by movements in the balance of payments, government intervention and decision of Central Banks on interest rates, for example, may affect the value of those investments when expressed in Australian dollars.
The parameters set out in the section 2.3 Investment Parameters of this Information Memorandum are designed to mitigate the risk to the Fund as whole as the assets are susceptible to fluctuations in value caused by economic conditions affecting a particular issue, security or market. However the Fund is still exposed to those risks to the extent that the assets are concentrated in those sectors.
Reliance on key personnel
The success of the Fund is largely dependent on the skills and experience of the Directors. If any of these key individuals is incapacitated in any way the performance of the Fund may be adversely affected.
Lack of operating history
The Fund is newly established and so does not have an operating history on which Investors can base an evaluation of the future performance of the Fund. While the principals are experienced professionals who have previously developed and implemented investment management strategies similar to those the Fund will pursue, this experience does not guarantee future returns.
Other activities and conflicts of interest
The Fund Manager will devote sufficient resources to the management of the Fund. In particular, both Mr Reid and Mr Langdon will work full time in the business. However, Mr Galbally will continue to carry on the corporate advisory business of the Manager in addition to participating in the management of the Fund. Since the boards of the Trustee and the Manager have a common director, the two companies cannot operate at arms’ length from one another.