QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
c/o Man Investments (USA) Corp. |
||
(Address of principal executive offices) |
(Zip Code) | |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
ITEM 1. |
Financial Statements. |
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 |
| (a) | At March 31, 2023 (unaudited) and December 31, 2022 |
| (b) | For the three month periods ended March 31, 2023 and 2022 (unaudited) |
March 31, 2023 (Unaudited) |
December 31, 2022 |
|||||||
ASSETS |
||||||||
Investment in Man-AHL Diversified Trading Company L.P. |
$ | $ | ||||||
Due from Man-AHL Diversified Trading Company L.P. |
||||||||
Total assets |
$ | $ | ||||||
LIABILITIES AND PARTNERS’ CAPITAL |
||||||||
LIABILITIES: |
||||||||
Redemptions payable |
$ | $ | ||||||
Management fees payable |
||||||||
Servicing fees payable |
||||||||
Accrued expenses and other liabilities |
||||||||
Total liabilities |
||||||||
PARTNERS’ CAPITAL: |
||||||||
General Partner - Class A Series 1 ( |
||||||||
Limited Partners - Class A Series 1 ( |
||||||||
Limited Partners - Class A Series 2 ( |
||||||||
Limited Partners - Class B Series 1 ( |
||||||||
Total partners’ capital |
||||||||
Total liabilities and partners’ capital |
$ | $ | ||||||
NET ASSET VALUE PER OUTSTANDING UNIT OF PARTNERSHIP INTEREST - CLASS A Series 1 |
$ | * | $ | * | ||||
NET ASSET VALUE PER OUTSTANDING UNIT OF PARTNERSHIP INTEREST - CLASS A Series 2 |
$ | * | $ | * | ||||
NET ASSET VALUE PER OUTSTANDING UNIT OF PARTNERSHIP INTEREST - CLASS B Series 1 |
$ | * | $ | * | ||||
| * | Difference in net asset value recalculation and net asset value stated is caused by rounding differences. |
For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
NET INVESTMENT INCOME (LOSS) ALLOCATED FROM MAN-AHL DIVERSIFIED TRADING COMPANY L.P.: |
||||||||
Interest income |
$ | $ | ||||||
Other income |
||||||||
Brokerage commissions |
( |
) | ( |
) | ||||
Interest expense - brokers |
( |
) | ( |
) | ||||
Administration fees |
( |
) | ( |
) | ||||
Professional fees |
( |
) | ( |
) | ||||
Shareholder expenses |
( |
) | ( |
) | ||||
Other expenses |
( |
) | ( |
) | ||||
Net investment income (loss) allocated from Man-AHL Diversified Trading Company L.P. |
( |
) | ||||||
PARTNERSHIP EXPENSES: |
||||||||
Management fees |
||||||||
Servicing fees |
||||||||
Professional fees |
||||||||
Other expenses |
||||||||
Total partnership expenses |
||||||||
Net investment loss |
( |
) | ( |
) | ||||
REALIZED AND UNREALIZED GAINS (LOSSES) ON TRADING ACTIVITIES ALLOCATED FROM MAN-AHL DIVERSIFIED TRADING COMPANY L.P.: |
||||||||
Net realized trading gains (losses) on closed contracts/agreements and foreign currency transactions |
( |
) | ||||||
Net change in unrealized trading gains (losses) on securities |
( |
) | ( |
) | ||||
Net change in unrealized trading gains (losses) on open contracts/agreements and translation of foreign currency |
||||||||
Net gains (losses) on trading activities allocated from Man-AHL Diversified Trading Company L.P. |
( |
) | ||||||
NET INCOME (LOSS) |
$ | ( |
) | $ | ||||
NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST (based on weighted average units outstanding during the period): |
||||||||
CLASS A Series 1 |
$ | ( |
) | $ | ||||
CLASS A Series 2 |
$ | ( |
) | $ | ||||
CLASS B Series 1 |
$ | ( |
) | $ | ||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING DURING THE PERIOD: |
||||||||
CLASS A Series 1 |
||||||||
CLASS A Series 2 |
||||||||
CLASS B Series 1 |
||||||||
CLASS A Series 1 |
CLASS A Series 2 |
CLASS B Series 1 |
TOTAL |
|||||||||||||||||||||||||||||||||||||
Limited Partners |
General Partner |
Limited Partners |
Limited Partners |
|||||||||||||||||||||||||||||||||||||
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
|||||||||||||||||||||||||||||||
| PARTNERS’ CAPITAL |
||||||||||||||||||||||||||||||||||||||||
| January 1, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Subscriptions |
— | — | — | — | ||||||||||||||||||||||||||||||||||||
| Redemptions |
( |
) | ( |
) | — | — | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income (loss) |
( |
) | — | ( |
) | — | ( |
) | — | ( |
) | — | ( |
) | — | |||||||||||||||||||||||||
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| PARTNERS’ CAPITAL |
||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
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| PARTNERS’ CAPITAL |
||||||||||||||||||||||||||||||||||||||||
| January 1, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Subscriptions |
— | — | ||||||||||||||||||||||||||||||||||||||
| Redemptions |
— | — | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | — | — | — | |||||||||||||||||||||||||||||||||||
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| PARTNERS’ CAPITAL |
||||||||||||||||||||||||||||||||||||||||
| March 31, 2022 |
$ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| |
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For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Purchases of investments in Man-AHL Diversified Trading Company L.P. |
||||||||
| Sales of investments in Man-AHL Diversified Trading Company L.P. |
||||||||
| Net (gains) losses on trading activities and net investment loss allocated from investment in Man-AHL Diversified Trading Company L.P. |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Increase (decrease) in management fees payable |
( |
) | ||||||
| Increase (decrease) in servicing fees payable |
( |
) | ||||||
| Increase (decrease) in accrued expenses and other liabilities |
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| |
|
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|
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| Net cash provided by (used in) operating activities |
( |
) | ||||||
| |
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| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from subscriptions |
||||||||
| Payments on redemptions (net of change in redemptions payable) |
( |
) | ( |
) | ||||
| |
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|
|
|||||
| Net cash used in financing activities |
( |
) | ||||||
| |
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|
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| NET INCREASE (DECREASE) IN CASH |
||||||||
| CASH - Beginning of period |
||||||||
| |
|
|
|
|||||
| CASH - End of period |
$ | $ | ||||||
| |
|
|
|
|||||
For the three months ended March 31, 2023 |
For the three months ended March 31, 2022 |
|||||||||||||||||||||||
Class A Series 1 |
Class A Series 2 |
Class B Series 1 |
Class A Series 1 |
Class A Series 2 |
Class B Series 1 |
|||||||||||||||||||
| Per unit operating performance: |
||||||||||||||||||||||||
| Beginning net asset value |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| |
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| Income (loss) from investment operations: |
||||||||||||||||||||||||
| Net investment income (loss) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Net realized and unrealized gains (losses) on trading activities |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
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| Total income (loss) from investment operations |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
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| Ending net asset value |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| |
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| Ratios to average partners’ capital 1 : |
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| Expenses other than incentive fees |
% | % | % | % | % | % | ||||||||||||||||||
| |
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| Total expenses |
% | % | % | % | % | % | ||||||||||||||||||
| |
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| Net investment income (loss) |
( |
)% | % | ( |
)% | ( |
)% | ( |
)% | ( |
)% | |||||||||||||
| |
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| Total return 2 : |
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| Total return before incentive fees |
( |
)% | ( |
)% | ( |
)% | % | % | % | |||||||||||||||
| |
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| Total return after incentive fees |
( |
)% | ( |
)% | ( |
)% | % | % | % | |||||||||||||||
| |
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1 |
Includes amounts allocated from the Trading Company. Ratios have been annualized. |
2 |
Total return is for the period indicated and has not been annualized. |
Financial Statements |
||||
| 12 | ||||
| 13 | ||||
| 15 | ||||
| 16 | ||||
| 17 | ||||
| 18 | ||||
| (a) | At March 31, 2023 (unaudited) and December 31, 2022 |
| (b) | For the three month periods ended March 31, 2023 and 2022 (unaudited) |
March 31, 2023 (Unaudited) |
December 31, 2022 |
|||||||
ASSETS |
||||||||
Equity in trading accounts: |
||||||||
Net unrealized trading gains on open futures contracts |
$ | $ | ||||||
Net unrealized trading gains on open forward contracts |
||||||||
Net unrealized trading gains on open swap agreements |
||||||||
Net premiums paid on credit default swap agreements |
||||||||
Due from brokers |
||||||||
Total equity in trading accounts |
||||||||
Cash and cash equivalents |
||||||||
Investment in securities, at fair value (cost $ |
||||||||
Total assets |
$ | $ | ||||||
LIABILITIES AND PARTNERS’ CAPITAL |
||||||||
LIABILITIES: |
||||||||
Net unrealized trading losses on open futures contracts |
$ | $ | ||||||
Net unrealized trading losses on open forward contracts |
||||||||
Net unrealized trading losses on open swap agreements |
||||||||
Due to brokers |
||||||||
Redemptions payable to Man-AHL Diversified I L.P. |
||||||||
Redemptions payable to Man-AHL Diversified II L.P. |
||||||||
Accrued expenses and other liabilities |
||||||||
Total liabilities |
||||||||
PARTNERS’ CAPITAL: |
||||||||
Limited Partners ( |
||||||||
Total partners’ capital |
||||||||
Total liabilities and partners’ capital |
$ | $ | ||||||
NET ASSET VALUE PER OUTSTANDING UNIT OF PARTNERSHIP INTEREST |
$ | * | $ | * | ||||
| * | Difference in net asset value recalculation and net asset value stated is caused by rounding differences. |
March 31, 2023 (Unaudited) |
December 31, 2022 |
|||||||||||||||
Fair Value |
Percent of Partners’ Capital |
Fair Value |
Percent of Partners’ Capital |
|||||||||||||
| FUTURES CONTRACTS - Long: |
||||||||||||||||
| Agricultural |
$ | $ | ||||||||||||||
| Currencies |
( |
) | ( |
)* | ||||||||||||
| Energy |
* | ( |
) | ( |
) | |||||||||||
| Indices |
( |
) | ( |
) | ||||||||||||
| Interest Rates |
( |
) | ( |
) | * | |||||||||||
| Metals |
( |
) | ( |
)* | ||||||||||||
| |
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|||||||||
| Total futures contracts - long |
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| |
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|||||||||
| FUTURES CONTRACTS - Short: |
||||||||||||||||
| Agricultural |
* |
( |
) | ( |
)* | |||||||||||
| Currencies |
( |
) | ( |
)* | ||||||||||||
| Energy |
||||||||||||||||
| Indices |
( |
) | ( |
) | ||||||||||||
| Interest Rates |
( |
) | ( |
) | ||||||||||||
| Metals |
( |
) | ( |
)* | * | |||||||||||
| |
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|||||||||
| Total futures contracts - short |
( |
) | ( |
) | ||||||||||||
| |
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|
|
|||||||||
| NET UNREALIZED TRADING GAINS (LOSSES) ON OPEN FUTURES CONTRACTS |
$ | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| FORWARD CONTRACTS - Long: |
||||||||||||||||
| Australian dollars |
$ | * | $ | |||||||||||||
| Brazilian real |
( |
) | ( |
) | ||||||||||||
| Mexican peso |
||||||||||||||||
| New Zealand dollars |
* | ( |
) | ( |
)* | |||||||||||
| South African rand |
* | |||||||||||||||
| South Korean won |
( |
) | ( |
)* | ||||||||||||
| U.K. pound |
( |
) | ( |
) | ||||||||||||
| Other |
||||||||||||||||
| |
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|||||||||
| Total long forward contracts vs USD |
||||||||||||||||
| |
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|
|
|
|||||||||
| FORWARD CONTRACTS - Short: |
||||||||||||||||
| Australian dollars |
* | ( |
) | ( |
) | |||||||||||
| Brazilian real |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Mexican peso |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| New Zealand dollars |
( |
) | ( |
)* | ( |
) | ( |
)* | ||||||||
| South African rand |
( |
) | ( |
)* | ( |
) | ( |
) | ||||||||
| South Korean won |
* | ( |
) | ( |
) | |||||||||||
| U.K. pound |
( |
) | ( |
) | ( |
) | ( |
)* | ||||||||
| Other |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
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|
|||||||||
| Total short forward contracts vs USD |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Forward contracts - Cross currencies |
( |
) | ( |
) | ||||||||||||
| Forward contracts - Metal non USD |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
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|
|||||||||
| ( |
) | ( |
) | |||||||||||||
| |
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|
|||||||||
| NET UNREALIZED TRADING GAINS (LOSSES) ON OPEN FORWARD CONTRACTS |
$ | $ | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| * | A zero balance may reflect amounts rounding to less than 0.05 % |
March 31, 2023 (Unaudited) |
December 31, 2022 |
|||||||||||||||||||
Principal |
Fair Value** |
Percent of Partners’ Capital |
Fair Value** |
Percent of Partners’ Capital |
||||||||||||||||
SWAP AGREEMENTS - Long: |
||||||||||||||||||||
Credit default swaps - Buy protection centrally cleared (upfront premiums paid $ |
$ | ( |
) | ( |
) | $ | — | — | ||||||||||||
Total swap agreements - long |
( |
) | ( |
) | — | — | ||||||||||||||
SWAP AGREEMENTS - Short: |
||||||||||||||||||||
Credit default swaps - Sell protection centrally cleared (upfront premiums paid $ |
* | |||||||||||||||||||
Total swap agreements - short |
* | |||||||||||||||||||
NET UNREALIZED TRADING GAINS/(LOSSES) ON OPEN SWAP AGREEMENTS |
$ | $ | * | |||||||||||||||||
NET UNREALIZED TRADING GAINS/(LOSSES) ON OPEN CONTRACTS/AGREEMENTS |
$ | $ | ( |
) | ( |
) | ||||||||||||||
U.S. GOVERNMENT SECURITIES - Long: |
||||||||||||||||||||
United States Treasury Bill 0% 01/26/23 |
$ | — | — | $ | ||||||||||||||||
United States Treasury Bill 0% 05/18/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 01/19/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 05/25/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 05/18/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 05/25/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 06/29/23 |
— | — | ||||||||||||||||||
United States Treasury Bill 0% 07/06/23 |
— | — | ||||||||||||||||||
Total U.S. government securities - long |
||||||||||||||||||||
TOTAL INVESTMENT IN SECURITIES (COST $ |
$ | $ | ||||||||||||||||||
| * | A zero balance may reflect amounts rounding to less than 0.05% |
| ** | The Fair Value of credit default swaps excludes upfront premiums received/paid which are presented separately in the statements of financial condition. Refer to Note 2 for further details on the accounting treatment of premiums on credit default swaps. |
For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
NET INVESTMENT INCOME: |
||||||||
Interest income |
$ | $ | ||||||
Other income |
||||||||
Total investment income |
||||||||
EXPENSES |
||||||||
Brokerage commissions |
||||||||
Interest expense - brokers |
||||||||
Administration fees |
||||||||
Professional fees |
||||||||
Shareholder expenses |
||||||||
Other expenses |
||||||||
Total expenses |
||||||||
Net investment income (loss) |
( |
) | ||||||
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON TRADING ACTIVITIES: |
||||||||
Net realized trading gains (losses) on closed contracts/agreements and foreign currency transactions |
( |
) | ||||||
Net change in unrealized gains (losses) on translation of foreign currency |
( |
) | ( |
) | ||||
Net change in unrealized trading gains (losses) on investments in securities |
( |
) | ( |
) | ||||
Net change in unrealized trading gains (losses) on open contracts/agreements |
||||||||
Net gain (loss) on trading activities |
( |
) | ||||||
NET INCOME (LOSS) |
$ | ( |
) | $ | ||||
NET INCOME (LOSS) PER UNIT OF PARTNERSHIP INTEREST (based on weighted average units outstanding during the period) |
$ | ( |
) | $ | ||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING DURING THE PERIOD |
||||||||
Limited Partners |
General Partner |
Total |
||||||||||||||||||||||
Amount |
Units |
Amount |
Units |
Amount |
Units |
|||||||||||||||||||
| PARTNERS’ CAPITAL - January 1, 2023 |
$ | $ | — | — | $ | |||||||||||||||||||
| Subscriptions |
— | — | ||||||||||||||||||||||
| Redemptions |
( |
) | ( |
) | — | — | ( |
) | ( |
) | ||||||||||||||
| Net income (loss) |
( |
) | — | — | — | ( |
) | — | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| PARTNERS’ CAPITAL - March 31, 2023 |
$ | $ | — | — | $ | |||||||||||||||||||
| |
|
|
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|
|
|
|
|
|
|
|||||||||||||
| PARTNERS’ CAPITAL - January 1, 2022 |
$ | $ | — | — | $ | |||||||||||||||||||
| Subscriptions |
— | — | ||||||||||||||||||||||
| Redemptions |
( |
) | ( |
) | — | — | ( |
) | ( |
) | ||||||||||||||
| Net income (loss) |
— | — | — | — | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| PARTNERS’ CAPITAL - March 31, 2022 |
$ | $ | — | — | $ | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Purchases of investments in securities |
( |
) | ( |
) | ||||
| Amortization of premium/discount on securities |
( |
) | ( |
) | ||||
| Sales of investments in securities |
||||||||
| Net change in unrealized trading (gains) losses on investments in securities |
||||||||
| Net change in unrealized trading (gains) losses on open contracts/agreements |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: |
||||||||
| (Increase) decrease in due from brokers |
( |
) | ||||||
| (Increase) decrease in net premiums paid on credit default swap agreements |
( |
) | ||||||
| Increase (decrease) in net premiums received on credit default swap agreements |
( |
) | ||||||
| Increase (decrease) in due to brokers |
( |
) | ||||||
| Increase (decrease) in accrued expenses and other liabilities |
||||||||
| |
|
|
|
|||||
| Net cash provided by (used in) operating activities |
||||||||
| |
|
|
|
|||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from subscriptions |
||||||||
| Payments on redemptions (net of change in redemptions payable) |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
||||||||
| |
|
|
|
|||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period |
||||||||
| |
|
|
|
|||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period |
$ | $ | ||||||
| |
|
|
|
|||||
| SUPPLEMENTAL DISCLOSURE OF CASH ACTIVITY: |
||||||||
| Cash paid for interest during the period |
$ | $ | ||||||
| |
|
|
|
|
|
|
|
|
March 31, 2023 |
December 31, 2022 |
March 31, 2022 |
||||||||||
As at March 31, 2023, December 31, 2022 and March 31, 2022, the amounts included in cash, cash equivalents and restricted cash include the following: |
||||||||||||
Cash and cash equivalents |
$ | $ | $ | |||||||||
Due from brokers (see Note 2) |
||||||||||||
Total cash, cash equivalents and restricted cash |
$ | $ | $ | |||||||||
| • | Level 1 — quoted prices in active markets for identical assets or liabilities |
| • | Level 2 — investments with significant market observable inputs |
| • | Level 3 — investments with significant unobservable inputs, which may include the Trading Company’s own assumptions in determining the fair value of investments |
Fair Value Measurements |
||||||||||||||||
Investments |
As of March 31, 2023 |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Assets |
||||||||||||||||
Treasury bills |
$ | $ | — | $ | $ | — | ||||||||||
Futures contracts |
— | — | ||||||||||||||
Forward contracts |
— | — | ||||||||||||||
Swap agreements* |
— | — | ||||||||||||||
Total Assets |
— | |||||||||||||||
Liabilities |
||||||||||||||||
Futures contracts |
( |
) | ( |
) | — | — | ||||||||||
Forward contracts |
( |
) | — | ( |
) | — | ||||||||||
Swap agreements* |
( |
) | — | ( |
) | — | ||||||||||
Total Liabilities |
( |
) | ( |
) | ( |
) | — | |||||||||
Net Fair Value |
$ | $ | $ | $ | — | |||||||||||
Fair Value Measurements |
||||||||||||||||
Investments |
As of December 31, 2022 |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Assets |
||||||||||||||||
Treasury bills |
$ | $ | — | $ | $ | — | ||||||||||
Futures contracts |
— | — | ||||||||||||||
Forward contracts |
— | — | ||||||||||||||
Swap agreements* |
— | — | ||||||||||||||
Total Assets |
— | |||||||||||||||
Liabilities |
||||||||||||||||
Futures contracts |
( |
) | ( |
) | — | — | ||||||||||
Forward contracts |
( |
) | — | ( |
) | — | ||||||||||
Swap agreements* |
( |
) | — | ( |
) | — | ||||||||||
Total Liabilities |
( |
) | ( |
) | ( |
) | — | |||||||||
Net Fair Value |
$ | $ | $ | $ | — | |||||||||||
| * | The Fair Value of credit default swaps excludes upfront premiums received/paid which are presented separately in the statements of financial condition. Refer to Note 2 for further details on the accounting treatment of premiums on credit default swaps. |
Fair Value and Notional Amounts by Contract Term |
||||||||||||||||
March 31, 2023 |
December 31, 2022 |
|||||||||||||||
| Credit spread (in basis points) |
Fair Value |
Notional Amount |
Fair Value |
Notional Amount |
||||||||||||
| |
$ | $ | $ | $ | ||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
March 31, 2023 |
December 31, 2022 |
|||||||||||||||
Greater than |
Greater than |
|||||||||||||||
| Credit spread (in basis points) |
Fair Value |
Notional Amount |
Fair Value |
Notional Amount |
||||||||||||
| |
$ | $ | $ | $ | ||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
March 31, 2023 |
||||||||||||
Asset Derivatives |
Liability Derivatives |
|||||||||||
Primary Risk Exposure |
Statements of Financial Condition |
Fair Value | Statements of Financial Condition |
Fair Value | ||||||||
Open forward contracts |
Gross unrealized trading gains on open forward contracts | Gross unrealized trading losses on open forward contracts | ||||||||||
Currencies |
$ | $ | ( |
) | ||||||||
Metals |
( |
) | ||||||||||
Total open forward contracts |
( |
) | ||||||||||
Open futures contracts |
Gross unrealized trading gains on open futures contracts | Gross unrealized trading losses on open futures contracts | ||||||||||
Agricultural |
( |
) | ||||||||||
Currencies |
— | ( |
) | |||||||||
Energy |
( |
) | ||||||||||
Indices |
( |
) | ||||||||||
Interest rates |
( |
) | ||||||||||
Metals |
( |
) | ||||||||||
Total open futures contracts |
( |
) | ||||||||||
Open swap agreements Credit |
Gross unrealized trading gains on open swap agreements | Gross unrealized trading losses on open swap agreements | ||||||||||
| ( |
) | |||||||||||
Total open swap agreements |
( |
) | ||||||||||
Total Derivatives |
$ | $ | ( |
) | ||||||||
December 31, 2022 |
||||||||||||
Asset Derivatives |
Liability Derivatives |
|||||||||||
Primary Risk Exposure |
Statements of Financial Condition |
Fair Value | Statements of Financial Condition |
Fair Value | ||||||||
Open forward contracts |
Gross unrealized trading gains on open forward contracts | Gross unrealized trading losses on open forward contracts | ||||||||||
Currencies |
$ | $ | ( |
) | ||||||||
Metals |
( |
) | ||||||||||
Total open forward contracts |
( |
) | ||||||||||
Open futures contracts |
Gross unrealized trading gains on open futures contracts | Gross unrealized trading losses on open futures contracts | ||||||||||
Agricultural |
( |
) | ||||||||||
Currencies |
— | ( |
) | |||||||||
Energy |
( |
) | ||||||||||
Indices |
( |
) | ||||||||||
Interest rates |
( |
) | ||||||||||
Metals |
||||||||||||
Total open futures contracts |
( |
) | ||||||||||
Open swap agreements Credit |
Gross unrealized trading gains on open swap agreements | Gross unrealized trading losses on open swap agreements | ||||||||||
| ( |
) | |||||||||||
Total open swap agreements |
( |
) | ||||||||||
Total Derivatives |
$ | $ | ( |
) | ||||||||
For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
Location of gain or loss recognized in income on derivatives |
Gain (Loss) on derivatives |
Gain (Loss) on derivatives |
||||||
Forward contracts |
||||||||
Currencies |
$ | ( |
) | $ | ( |
) | ||
Metals |
( |
) | ||||||
Net realized trading gains (losses) on closed contracts/agreements |
$ | ( |
) | $ | ||||
Currencies |
$ | $ | ||||||
Metals |
( |
) | ||||||
Net change in unrealized trading gains (losses) on open contracts/agreements |
$ | $ | ||||||
Futures contracts |
||||||||
Agricultural |
$ | $ | ||||||
Currencies |
( |
) | ||||||
Energy |
( |
) | ||||||
Indices |
( |
) | ( |
) | ||||
Interest rates |
( |
) | ||||||
Metals |
( |
) | ( |
) | ||||
Net realized trading gains (losses) on closed contracts/agreements |
$ | ( |
) | $ | ||||
Agricultural |
$ | $ | ||||||
Currencies |
||||||||
Energy |
( |
) | ||||||
Indices |
( |
) | ||||||
Interest rates |
( |
) | ||||||
Metals |
( |
) | ||||||
Net change in unrealized trading gains (losses) on open contracts/agreements |
$ | ( |
) | $ | ||||
Swap agreements |
||||||||
Credit default swaps |
$ | ( |
) | $ | ( |
) | ||
Net realized trading gains (losses) on closed contracts/agreements |
$ | ( |
) | $ | ( |
) | ||
Credit default swaps |
$ | $ | ( |
) | ||||
Net change in unrealized trading gains (losses) on open contracts/agreements |
$ | $ | ( |
) | ||||
| Gross Amount Offset in the Statements of Financial Condition |
Net Amounts of Assets presented in the Statements of Financial Condition |
Gross Amounts Not Offset in the Statements of Financial Condition |
||||||||||||||||||||||
| Gross Amounts of Recognized Assets |
Financial Instruments |
Cash Collateral Received |
Net Amount | |||||||||||||||||||||
As of March 31, 2023 |
||||||||||||||||||||||||
Open futures contracts |
||||||||||||||||||||||||
Bank of America Merrill Lynch |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Goldman Sachs |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Total open futures contracts |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Open forward contracts |
||||||||||||||||||||||||
Citigroup |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
HSBC |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Royal Bank of Scotland |
( |
) | ||||||||||||||||||||||
Total open forward contracts |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Open swap agreements |
||||||||||||||||||||||||
Barclays |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Goldman Sachs |
||||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Total open swap agreements |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
As of December 31, 2022 |
||||||||||||||||||||||||
Open futures contracts |
||||||||||||||||||||||||
Bank of America Merrill Lynch |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Goldman Sachs |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Total open futures contracts |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Open forward contracts |
||||||||||||||||||||||||
Citigroup |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
HSBC |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Royal Bank of Scotland |
( |
) | ||||||||||||||||||||||
Total open forward contracts |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Open swap agreements |
||||||||||||||||||||||||
Goldman Sachs |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total open swap agreements |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Gross Amount Offset in the Statements of Financial Condition |
Net Amounts of Liabilities Presented in the Statements of Financial Condition |
Gross Amounts Not Offset in the Statements of Financial Condition |
||||||||||||||||||||||
| Gross Amounts of Recognized Liabilities |
Financial Instruments |
Cash Collateral Pledged |
Net Amount |
|||||||||||||||||||||
As of March 31, 2023 |
||||||||||||||||||||||||
Open futures contracts |
||||||||||||||||||||||||
Bank of America Merrill Lynch |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Goldman Sachs |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ( |
) | ||||||||||||||||||||
Total open futures contracts |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Open forward contracts |
||||||||||||||||||||||||
Citigroup |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
HSBC |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ( |
) | ||||||||||||||||||||
Royal Bank of Scotland |
( |
) | ||||||||||||||||||||||
Total open forward contracts |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Open swap agreements |
||||||||||||||||||||||||
Barclays |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
JPMorgan Chase |
( |
) | ( |
) | ||||||||||||||||||||
Total open swap agreements |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
As of December 31, 2022 |
||||||||||||||||||||||||
Open futures contracts |
||||||||||||||||||||||||
Bank of America Merrill Lynch |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Goldman Sachs |
( |
) | ||||||||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Total open futures contracts |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Open forward contracts |
||||||||||||||||||||||||
Citigroup |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
HSBC |
( |
) | ( |
) | ||||||||||||||||||||
JPMorgan Chase |
( |
) | ( |
) | ||||||||||||||||||||
Royal Bank of Scotland |
( |
) | ( |
) | ||||||||||||||||||||
Total open forward contracts |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
Open swap agreements |
||||||||||||||||||||||||
Barclays |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
JPMorgan Chase |
( |
) | ||||||||||||||||||||||
Total open swap agreements |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Additional Collateral Pledged |
||||
As of March 31, 2023 |
||||
Open futures contracts |
||||
Bank of America Merrill Lynch |
$ | |||
Open futures contracts and swap agreements |
||||
Goldman Sachs |
$ | |||
Open forward contracts |
||||
Citigroup |
$ | |||
HSBC |
$ | |||
Royal Bank of Scotland |
$ | |||
Open futures, forward and swap agreements |
||||
JPMorgan Chase |
$ | |||
Open swap agreements |
||||
Barclays |
$ | |||
As of December 31, 2022 |
||||
Open futures contracts |
||||
Bank of America Merrill Lynch |
$ | |||
Open futures contracts and swap agreements |
||||
Goldman Sachs |
$ | |||
Open forward contracts |
||||
Citigroup |
$ | |||
HSBC |
$ | |||
Royal Bank of Scotland |
$ | |||
Open futures, forward and swap agreements |
||||
JPMorgan Chase |
$ | |||
Open swap agreements |
||||
Barclays |
$ | |||
For the three months ended March 31, |
||||||||
2023 |
2022 |
|||||||
Per unit operating performance: |
||||||||
Beginning net asset value |
$ | $ | ||||||
Income (loss) from investment operations: |
||||||||
Net investment income (loss) |
( |
) | ||||||
Net realized and unrealized gains (losses) on trading activities and translation of foreign currency |
( |
) | ||||||
Total income (loss) from investment operations |
( |
) | ||||||
Ending net asset value |
$ | $ | ||||||
Ratios to average partners’ capital 1 : |
||||||||
Expenses |
% | % | ||||||
Net investment income (loss) |
% | ( |
)% | |||||
Total return 2 |
( |
)% | % | |||||
1 |
Ratios have been annualized. |
2 |
Total return is for the period indicated and has not been annualized. |
For the year ended December 31, 2022 |
||||||||||||
Financial statement location |
Prior to Revision |
Post Revision |
Impact |
|||||||||
Statement of Cash Flows - Changes in operating assets and liabilities: |
||||||||||||
Due from brokers |
( |
) |
||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) consists of: |
||||||||||||
Cash and cash equivalents - unrestricted |
||||||||||||
Cash and cash equivalents - restricted |
||||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) at the end of the year |
||||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) at the beginning of the year |
||||||||||||
For the three months ended March 31, 2022 |
||||||||||||
Financial statement location |
Prior to Revision |
Post Revision |
Impact |
|||||||||
Statement of Cash Flows - Changes in operating assets and liabilities: |
||||||||||||
Due from brokers |
( |
) | ||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) consists of: |
||||||||||||
Cash and cash equivalents - unrestricted |
||||||||||||
Cash and cash equivalents - restricted |
||||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) at the end of the period |
||||||||||||
Statement of Cash Flows - Cash and cash equivalents (including restricted cash) at the beginning of the period |
||||||||||||
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Introduction
Reference is made to Item 1, “Financial Statements.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.
Operational Overview
Man-AHL Diversified I L.P. (the “Partnership”) is a fund which engages in speculative trading of futures and forward contracts and related instruments through its investment in Man-AHL Diversified Trading Company L.P. (the “Trading Company”) pursuant to the AHL Diversified Program, directed on behalf of the Trading Company by AHL Partners LLP (the “Trading Advisor”). The Trading Advisor also serves as the Partnership’s commodity pool operator. The AHL Diversified Program is a price trend-following trading system, entirely quantitative in nature, and implements trading positions on the basis of statistical analyses of past price histories. The objective of the AHL Diversified Program is to deliver capital growth for commensurate levels of volatility over the medium term, independent of the movement of the stock and bond markets, through the speculative trading, directly and indirectly, of futures, options and forward contracts, swaps and other financial derivatives both on and off exchange. The AHL Diversified Program trades globally in several market sectors, including, without limitation, currencies, bonds, energies, stock indices, interest rates, credit, metals, agricultural and volatility. In the future, the AHL Diversified Program may, to a limited extent, invest in stocks.
The AHL Diversified Program is proprietary and confidential, so that substantially the only information that can be furnished regarding the Partnership’s results of operations is contained in the performance record of its trading through the Trading Company. Past performance is not necessarily indicative of its future results. Man Investments (USA) Corp., the general partner of the Partnership (the “General Partner”) does believe, however, that there are certain market conditions, for example, markets with pronounced price trends, in which the Partnership has a greater likelihood of being profitable than in other market environments.
Capital Resources and Liquidity
Units of limited partnership interests (“Units”) of the Partnership may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.
The Partnership raises additional capital only through the sale of Units and capital is increased through trading profits (if any) and interest income. The Partnership does not engage in borrowing. The Partnership, not being an operating company, does not incur capital expenditures. It functions solely as a passive trading vehicle, investing the substantial majority of its assets in the Trading Company. Its remaining capital resources are used only as assets available to make further investments in the Trading Company and to pay Partnership level expenses. Accordingly, the amount of capital raised for the Partnership should not have a significant impact on its operations.
Partnership assets not invested in the Trading Company are maintained in cash and cash equivalents in bank accounts or accounts with The Bank of New York Mellon and are readily available to the Partnership. The Partnership may redeem any part or all of its limited partnership interest in the Trading Company at any month-end at the net asset value per unit of the Trading Company. The Trading Company’s assets are generally held as cash or cash equivalents which are used to margin futures and provide collateral for forward contracts and other over-the-counter (“OTC”) contract positions and are withdrawn, as necessary, to pay redemptions (to the Partnership and other investors in the Trading Company). Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Trading Company’s futures trading, the Trading Company’s assets are highly liquid and are expected to remain so.
32
There have been no material changes with respect to the Partnership’s critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership’s Form 10-Q filed March 31, 2023 except an immaterial presentation change as noted within Footnote 8 of the Trading Company’s Financial Statements.
Allocations by Market Sector
The following table indicates the percentage of the Partnership’s assets allocated to initial margin for the Partnership’s open trading positions, through the Trading Company, by market sector as of March 31, 2023. The Partnership’s capitalization was $90,442,480 as of March 31, 2023. See also Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” below.
| Quarter-End as of March 31st |
||||||||
| Market Sector |
Margin Allocation |
% of Capitalization |
||||||
| Agricultural |
$ | 1,257,819.31 | 1.39 | % | ||||
| Bonds |
$ | 566,546.13 | 0.63 | % | ||||
| Credit |
$ | 1,388,207.20 | 1.53 | % | ||||
| Currencies |
$ | 4,112,019.77 | 4.55 | % | ||||
| Energy |
$ | 914,208.13 | 1.01 | % | ||||
| Interest rates |
$ | 194,891.49 | 0.22 | % | ||||
| Metals |
$ | 1,289,859.5 | 1.43 | % | ||||
| Stock indices |
$ | 2,847,682.91 | 3.15 | % | ||||
| Total* |
$ | 12,571,234.44 | 13.90 | % | ||||
| * | Total Amount does not foot due to rounding. |
Results of Operations
Due to the nature of the Partnership’s trading, the results of operations for the interim period presented should not be considered indicative of the results that may be expected for the entire year.
| Period Ended March 31, 2023: | ||
| 31-Mar-23 | ||
| Ending Equity | $90,442,480 | |
Three months ended March 31, 2023:
Net assets decreased $5,532,267 for the three months ended March 31, 2023. This decrease was attributable to subscriptions in the amount of $700,000, redemptions in the amount of $858,484 and a net loss from operations of $5,373,783.
Management Fees of $708,229 and servicing fees of $236,969 were paid or accrued, and interest of $1,032,270 was earned or accrued on the Partnership’s share of the Trading Company’s cash and cash equivalents, investments and broker balances, for the three months ended March 31, 2023.
The Partnership’s other expenses paid or accrued for the three months ended March 31, 2023 were $113,026.
In January, the Partnership generated a positive return with gains from equity, credit, commodity and FX positions marginally offset by losses in fixed income. The rally in risk assets helped to provide a tailwind to the Partnership’s net long equities position. The top performer was a long in the Australian SPI 200
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index. A rallying Nasdaq, on the other hand, rising 11% on the month after a -33% return in 2022, did not benefit the Partnership’s short position. Losses were also incurred via short in the Korean Kospi. Credit spreads also narrowed over the month, benefitting short protection CDS positions in US investment-grade and European higher-yielding indices. The US-dollar continued to fall from its peak in November 2022, and this trend was best picked up through long positions in commodity currencies, most notably the Mexican and Chilean pesos. Short positions in the Colombian peso and Israeli shekel against the greenback, on the other hand, generated losses. Profits in commodity trading originated mostly from energy and metals, but with quite different narratives. China’s re-awakening was seemingly beneficial for long copper and gold positions while gold’s price was supported by a weaker US dollar and expectations that central banks might continue to buy gold to support their ‘de-dollarization’. Warm January weather likely contributed to falls in the price of natural gas on both sides of the Atlantic, and profits for the Partnership. Short positions in coffee and platinum generated small losses. Fixed income prices rallied in January on expectations that central banks may ease their rate-hiking plans. Several of the Partnership’s short positions, such as Italian and Australian government bond futures, flipped to long, incurring losses in the process. There were no offsetting profitable fixed income positions in January.
In February, the Partnership generated a positive return, net of fees, with positive attributions from fixed income and FX, and losses from commodities, stocks and credit. Expectations that the U.S. Federal Reserve (the “Fed”) might have more scope to raise rates contributed to a broad sell-off in fixed income instruments, particularly at the short end of the curve. This benefitted the aggregate short positioning in the Partnership, but the greatest beneficiaries were US instruments at the 3m, 2y, and 5-year points. A long position in the UK 10yr gilts, on the other hand, generated a loss. Trading in currencies generated a positive return on the month. The Partnership produced a gain from long USD currency crosses as the greenback rose on greater expectations of further rate rises from the Fed. Top performers were the Swiss franc and Israeli shekel. Short dollar positions against the Euro and Singapore dollar, on the other hand, lost out. Returns from equities dipped into the red, led by long positions in the Australian SPI 200 and MSCI Emerging Markets indices. Trading in credit fared similarly, with losses in US CDS indices overcoming smaller gains in European indices. Losses in commodities were driven by metals, most notably longs in precious metals, and particularly gold which turned tail, losing 5% in February after three successive winning months. Losses from generally short positions in the oil complex led to an overall negative return in energies. Gains were generated in agricultural trading, however, led by a short in wheat whose price fell for the fifth straight month amid news of changes in Russian and Ukrainian supply, as well as improved forecasts for the US crop.
In March, losses were driven by fixed income, equities, and credit positions. A decline of 61bp on 13th of March for US 2-year Treasury yields was the largest decline in over 40 years, was against the prevailing price trend, and was detrimental to a short in the instrument and indeed all other tenors of US treasuries traded by the Partnership. Canadian bonds and the US 5yr treasury generated losses in fixed income trading as all markets were contributed negatively on the month. A long position in the FTSE 100 as well as a short in the Australian SPI 200 detracted the most from an equity standpoint. Risk-on positions in CDS indices also were hurt among a the seeming flight-to-safety, with European and US investment grade companies most clearly in the crosshairs. Commodities trading was relatively unscathed by the crisis in financial markets. A silver position generated a loss as it flipped from short to long as precious metals seemingly benefitted from a flight-to-quality effect. Prices of EUA carbon emissions, on the other hand, fell along with risk assets, generating losses for the Partnership’s long position. Sugar trading was beneficial, however, as prices hit a 10-year high, possibly driven in part by declining crop yields resulting from poor weather and a ban on pesticides. Currency trading was mixed, dipping into the red overall. Short positions in safe-haven currencies such as the Swiss franc and Japanese yen generated losses in the flight-to-quality episode. Winning trades exhibited less of a clear pattern; long Euro against the Norwegian krone as well as a long Chilean peso against the US dollar generated a modest gain.
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| Period Ended March 31, 2022: | ||
| 31-Mar-22 | ||
| Ending Equity |
$98,782,319 | |
Three months ended March 31, 2022:
Net assets increased $10,607,740 for the three months ended March 31, 2022. This increase was attributable to subscriptions in the amount of $0, redemptions in the amount of $249,381 and a net gain from operations of $10,857,121.
Management Fees of $ 682,615 and servicing fees of $ 228,628 were paid or accrued, and interest of $42,960 was earned or accrued on the Partnership’s share of the Trading Company’s cash and cash equivalent investments and broker balances, for the three months ended March 31, 2022.
The Partnership’s other expenses paid or accrued for the three months ended March 31, 2022 were $238,994.
The Partnership started the year down, as gains from long energies, long agricultural and short bonds were broadly offset by losses from long credit and equity positions. The Partnership entered the new year with net long positions in equities and credit, which struggled against a bearish market. On the equity side, the rotation from growth to value compounded losses for long positions in S&P 500 and NASDAQ indices, and the Partnership posted losses in the Australian SPI 200 as well. Gains were seen in short FTSE China A50 index positions. Losses were also incurred from long credit positions, most notably in US 5-year investment-grade and European high-yield indices. Currency trading was mixed, just dipping into the red in aggregate. The US dollar rose in a broadly risk-off environment, which hurt the Partnership’s long positions against the greenback such as the Colombian peso and UK sterling, while a long in the Brazilian real and a short in the Korean won fared best. In the fixed income markets, benchmark US 10-year Treasuries rose around 30bp, and yields generally rose at all maturities, benefiting the Partnership’s short positioning across the curve, with top performers being in the US, from overnight-rates out to 10y. Long positions in German 2-year and Japanese 10-year bonds struggled, however, and generated losses. In the commodities market, the price of oil went up, and Brent futures reached seven-year highs of $90 a barrel. This increase had a positive result for the Partnership’s long positions in the oil complex, most notably heating and gas oil. Longs in agricultural commodities were also beneficial, particularly soybeans and soyoil. Precious metals generated losses, however, with gold failing to find a clear direction in the New Year.
In February, the Partnership ultimately finished up with gains from commodities and fixed income being slightly offset by losses in FX. Against the backdrop of warfare between Russia and Ukraine, commodity prices almost uniformly drove higher. The oil complex saw gains for the Partnership, alongside soybean and corn positions. Metals performance was more nuanced with longs in gold and aluminium beneficial but a similar position in silver detracted. The Partnership entered February short most fixed income instruments across maturities. This proved beneficial overall; the top performer was in 10-year Italian government bonds, while a long position in 2-year German bonds lost out. The Partnership’s losses in equities were driven by shorts in the Singapore MSCI and longs in the S&P TSX 60 indices, which were not offset by gains made in short positions in China’s H-shares index. The Partnership’s credit positions were positive; a position in European 5-year iTraxx CDS index was the top performer, flipping from short to long protection mid-month, and benefiting from risk-off sentiment. FX trading saw losses overall on volatile FX rates. Several pairs saw losses, with shorts in the New Zealand dollar and Euro against the US dollar faring worst, although longs in commodity currencies such as the Brazilian real, also against the greenback, performed well.
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To finish out the first quarter, March saw the Partnership finish with positive returns as commodity, FX, and fixed income trading gains offset the losses in credit. Commodities once more were top contributors for the Partnership, led by energies where long positions in the oil complex were accretive, although for the second month in a row, long positions in carbon emissions detracted on perception of lower energy demand. Long metals positions also generated positive returns, most notably gold but also nickel which gained on a well-publicized short squeeze at the London Metal Exchange. Trading in agricultural commodities was also positive, with corn and wheat top performers. Losses were seen in coffee and cocoa trading. The Partnership also saw positive returns from pairs involving long commodity currencies such as the Brazilian real and Australian dollar. Crosses against the Japanese yen were particularly beneficial as well, while long positions in the British pound against both the Euro and US dollar incurred losses. Short fixed income positions were also beneficial, particularly SOFR and 2-year bond futures. A short in German Schatz futures, on the other hand, generated a loss. The Partnership transitioned from short to small long in both equites and credit as the month progressed. Equities trading was marginally positive overall, with the top performers being Chinese indices. Credit trading dipped into the red, however, with losses driven by long CDS positions in the European high yield index.
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Introduction
Past Results Are Not Necessarily Indicative of Future Performance
The Partnership is a speculative commodity pool. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership’s main line of business.
Market movements result in frequent changes in the fair market value of the Partnership’s open positions and, consequently, in its earnings and cash flow. The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions and the liquidity of the markets in which it trades.
The Partnership can rapidly acquire and/or liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnership’s past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership’s experience to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Partnership’s losses in any market sector will be limited to Value at Risk or by the Partnership’s attempts to manage its market risk.
Materiality, as used in this section “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Partnership’s market sensitive instruments.
Quantifying the Partnership’s Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
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The Partnership’s risk exposure in the various market sectors traded by the General Partner is quantified below in terms of Value at Risk. Due to the Partnership’s mark-to-market accounting, any loss in the fair value of the Partnership’s open positions is directly reflected in the Partnership’s earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
For regulatory purposes, exchange initial margin requirements have been used by the Partnership as the measure of its Value at Risk. For trading and internal risk monitoring purposes, a different approach based on simulated market movements is used. Initial margin requirements include a credit risk factor and a maintenance margin factor and thus overstate the maximum one-day loss reflected by the maintenance margin requirement by the amount of the credit risk factor used in setting initial margin requirements. Maintenance margin requirements are set by dealers, exchanges and OTC clearing counterparties to equal or exceed 95-99% of the maximum one-day losses in the fair value of any given contract incurred during the time period over which historical price fluctuations are researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers, exchanges and OTC clearing counterparties using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments that are not exchange traded (almost exclusively currencies in the case of the Partnership), dealers’ margins have been used as Value at Risk.
The fair value of the Partnership’s futures and forward positions does not have any optionality component. However, the General Partner may also trade commodity options on behalf of the Partnership. The Value at Risk associated with options would be reflected in the margin requirement attributable to the instrument underlying each option.
In quantifying the Partnership’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Partnership’s positions are rarely, if ever, 100% positively correlated have not been reflected.
The Partnership’s Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest amount of trading Value at Risk associated with the Partnership’s open positions by market category as of the period ended March 31, 2023. As of March 31, 2023, the Partnership’s capitalization was $90,442,480.
| Quarter-Ended March 31, 2023 |
||||||||||||||||
| Market Sector |
Average Value at Risk |
% of Average Capitalization |
Highest Value at Risk |
Lowest Value at Risk |
||||||||||||
| Agricultural |
$ | 1,257,819.31 | 1.39 | % | $ | 1,257,819.31 | $ | 1,257,819.31 | ||||||||
| Bonds |
$ | 566,546.13 | 0.63 | % | $ | 566,546.13 | $ | 566,546.13 | ||||||||
| Credit |
$ | 1,388,207.20 | 1.53 | % | $ | 1,388,207.20 | $ | 1,388,207.20 | ||||||||
| Currencies |
$ | 4,112,019.77 | 4.55 | % | $ | 4,112,019.77 | $ | 4,112,019.77 | ||||||||
| Energies |
$ | 914,208.13 | 1.01 | % | $ | 914,208.13 | $ | 914,208.13 | ||||||||
| Interest rates |
$ | 194,891.49 | 0.22 | % | $ | 194,891.49 | $ | 194,891.49 | ||||||||
| Metals |
$ | 1,289,859.50 | 1.43 | % | $ | 1,289,859.50 | $ | 1,289,859.50 | ||||||||
| Stock indices |
$ | 2,847,682.91 | 3.15 | % | $ | 2,847,682.91 | $ | 2,847,682.91 | ||||||||
| Total* |
$ | 12,571,234.44 | 13.90 | % | $ | 12,571,234.44 | $ | 12,571,234.44 | ||||||||
| * | Total Amount does not foot due to rounding. |
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Average, highest and lowest Value at Risk amounts relate to the quarter-end amounts for the three months ended March 31, 2023. Average capitalization is the Partnership’s capitalization at the end of the three months ended March 31, 2023.
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is typically many times the applicable initial or maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership. The magnitude of the Partnership’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk table — as well as the past performance of the Partnership — gives no indication of this “risk of ruin.”
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial.
The Partnership also has non-trading cash flow risk as a result of holding a substantial portion of its assets in U.S. government securities (Treasury Bills) and interest-bearing bank accounts. These investments are placed with highly rated counterparties with a priority placed on preservation of capital and reputation (i.e., appropriate level of credit risk, market risk and reputation risk) and liquidity (i.e., appropriate level of liquidity risk).
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the General Partner manages the Partnership’s primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Partnership’s primary market risk exposures as well as the strategies used and to be used by the General Partner for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. There can be no assurance that the Partnership’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the Partnership as of March 31, 2023, by market sector.
Fixed Income. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in the United States, Italy, Australia, Canada, and the UK. However, the Partnership also may take positions in futures contracts on the government debt of smaller nations. The General Partner anticipates that G-7 interest rates, both long-term and short-term, will remain the primary market exposure of the Partnership for the foreseeable future.
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Currencies. Exchange rate risk is the principal market exposure of the Partnership. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Partnership trades in a large number of currencies, including cross-rates — i.e., positions between two currencies other than the U.S. dollar. As of March 31, 2023, the Partnership’s primary currency exposures were in the U.S. Dollar versus the Korean Won, Australian Dollar, Swiss Franc, Mexican Peso and Euro.
Stock Indices. The Partnership’s primary equity exposure, through stock index futures, is to equity price risk in the G-7 countries. As of March 31, 2023, the Partnership’s primary exposures were in the Taiwan MSCI, Nifty, Tokyo Stock Exchange and Russell 2000 indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major North American, European and Asian indices. (Static markets would not cause major market changes but could make it difficult for the Partnership to avoid numerous small losses.)
Metals. The AHL Diversified Program used for the Partnership trades precious and base metals. As of March 31, 2023, the Partnership’s primary metals market exposures were in Gold, Copper, Aluminum and Silver.
Agricultural. The Partnership has exposure to agricultural price movements, which are often directly affected by severe or unexpected weather conditions. Sugar, Wheat, Cocoa and Lean Hogs accounted for the substantial bulk of the Partnership’s commodities exposure as of March 31, 2023.
Energy. The Partnership’s primary energy market exposure is to gas and oil price movements, often resulting from political developments in the Middle East and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market. As of March 31, 2023, the main exposures were in US Natural Gas, Crude Oil, Gasoline and European Natural Gas.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of March 31, 2023.
Foreign Currency Balances. The Partnership’s primary foreign currency balance is in Euro. The Partnership controls the non-trading risk of these balances by regularly converting these balances back into U.S. dollars (no less frequently than twice a month).
Cash Positions and Investments in Treasury Bills. The Partnership’s only market exposure in instruments held other than for trading is in its cash portfolio and investments in Treasury Bills. The Partnership holds only investments in interest-bearing bank accounts and US Treasury Bills. These cash positions and investments in treasury bills are placed with highly rated counterparties with a priority placed on preservation of capital and reputation (i.e., appropriate level of credit risk, market risk and reputation risk) and liquidity (i.e., appropriate level of liquidity risk) with durations no longer than 1 year.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
Risk management is an essential component of AHL’s investment management process. AHL has put in place a risk management framework which is designed to identify, monitor and mitigate the portfolio, operational and outsourcing risks relevant to its operations. AHL’s risk management framework is part of, and is supported by, the overarching risk management framework of its parent company, Man Group plc. Key principles of AHL’s risk management framework include the segregation of functions and duties where material conflicts of interest may arise and having an appropriate degree of independent and senior management oversight of business activities. As part of this independent oversight, AHL’s activities are subject to regular review by an internal audit function.
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The AHL Diversified Program employs a systematic, statistically based investment strategy that is designed to identify and capitalize on trends and other inefficiencies in markets around the world. Trading signals are generated and executed via a finely tuned trading and implementation infrastructure. This process is quantitative, meaning that investment decisions are entirely driven by mathematical models based on quantitative analysis of historical relationships. It is underpinned by rigorous risk control, ongoing research, diversification and the constant quest for efficiency. Portfolio risk management consists primarily of monitoring risk measures and ensuring the systems remain within prescribed limits. The major risk monitoring measures and focus areas include value-at-risk, stress testing, implied volatility, leverage, margin-to-equity ratios and net exposures to sectors and different currencies.
Diversification is also a key feature of AHL’s risk management, as well as its investment, process. As well as emphasizing sector and market diversification, the AHL Diversified Program has been constructed to achieve diversification by combining various investment strategies. The AHL Diversified Program trades approximately 250 markets and these markets may be accessed directly or indirectly and include, without limitation, stock indices, bonds, currencies, short-term interest rates, energies, credits, metals, agriculturals and volatility. Another important aspect of diversification is the fact that the models generate signals across different timeframes, ranging from two to three days to several months. In line with the principle of diversification, the approach to portfolio construction and asset allocation is premised on the importance of deploying investment capital across the full range of sectors and markets. Particular attention is paid to correlation of markets and sectors, expected returns, trading costs and market liquidity. Portfolios are regularly reviewed and, when necessary, adjusted to reflect changes in these factors. AHL also has a systematic process for adjusting its market risk exposure in real time to reflect changes in the volatility, a measure of risk, of individual markets.
| ITEM 4. | Controls and Procedures. |
The General Partner, with the participation of the General Partner’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2023. Based on such evaluation, the General Partner’s Principal Executive Officer and Principal Financial Officer have concluded that the Partnership’s disclosure controls and procedures were effective as of the fiscal quarter ended March 31, 2023.
Changes in Internal Control over Financial Reporting
There were no significant changes in the Partnership’s internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
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PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings. |
None.
Item 1A. Risk Factors.
Risk of Loss. Investing in the Partnership is speculative and involves substantial risks. You should not invest unless you can afford to lose your entire investment.
General. The transactions in which the Trading Advisor generally will engage on behalf of the Partnership involve significant risks. Growing competition may limit the Trading Advisor’s ability to take advantage of trading opportunities in rapidly changing markets. No assurance can be given that investors will realize a profit on their investment. Moreover, investors may lose all or some of their investment. Because of the nature of the trading activities, the results of the Partnership’s operations may fluctuate from month to month and from period to period. Accordingly, investors should understand that the results of a particular period will not necessarily be indicative of results in future periods.
Markets Are Volatile and Difficult to Predict. Trading in futures is a speculative activity. Futures prices may be highly volatile. Market prices are difficult to predict and are influenced by many factors, including: changes in interest rates; governmental, agricultural, trade, fiscal, monetary and exchange control programs and policies; weather and climate conditions; changing supply and demand relationships; national and international political and economic events; and the changing philosophies and emotions of market participants. In addition, governments intervene in particular markets from time to time, both directly and by regulation, often with the intent to influence prices. The effects of government intervention may be particularly significant in the financial instrument and currency markets, and may cause such markets to move rapidly.
Trading Is Highly Leveraged. The low margin deposits normally required in futures trading permit an extremely high degree of leverage. A relatively small movement in the price of a futures contract may result in immediate and substantial loss or gain to a trader holding a position in such contract. For example, if at the time of purchase 10% of the price of a futures contract is deposited as margin, a 10% decrease in the price of the futures contract would, if the contract were then closed out, result in a total loss of the margin deposit before any deduction for brokerage commissions. Consequently, like other leveraged investments, a futures trade may result in losses in excess of the amount invested. Forward contracts involve similar leverage and also may require deposits of margin as collateral. Swaps and OTC derivative instruments are also highly leveraged transactions.
Markets May Be Illiquid. At times, it may not be possible for the Trading Advisor to obtain execution of a buy or sell order at the desired price or to liquidate an open position, either due to market conditions on exchanges or due to the operation of “daily price fluctuation limits” or “circuit breakers.” For example, most U.S. commodity exchanges limit fluctuations in most futures contract prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” During a single trading day, no trades may be executed at prices beyond the daily limit. Futures contract prices occasionally have moved to the daily limit for several consecutive days with little or no trading.
Even when futures prices have not moved to the daily limit, the Trading Advisor might not be able to obtain execution of trades at favorable prices if little trading in the contracts which the Trading Advisor wishes to trade is taking place. Also, an exchange or governmental authority may suspend or restrict trading on an exchange (or in particular futures traded on an exchange) or order the immediate settlement of a particular instrument.
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Options trading may be restricted in the event that trading in the underlying instrument becomes restricted. Options trading also may be illiquid at times regardless of the condition of the market in the underlying instrument. In either event, it will be difficult for the Trading Advisor to realize gains or limit losses on option positions by offsetting them or to change positions in the market.
Trading in OTC derivative instruments is conducted with individual counterparties rather than on organized exchanges. There have been periods during which forward and swap contract dealers have refused to quote prices for forward and swap contracts or have quoted prices with an unusually wide spread between the bid and asked price.
Speculative Position Limits May Restrict Futures Trading. Speculative position limits prescribe the maximum net long or short futures contract and options positions which any person or group may hold or control in particular futures contracts. All futures contracts and options on futures contracts traded on commodity exchanges located in the United States, with the exception of contracts on certain major non-U.S. currencies, are subject to speculative position limits established either by the Commodity Futures Trading Commission (the “CFTC”) or the relevant exchange.
All trading accounts owned or managed by the Trading Advisor and its principals will be combined for the purposes of speculative position limits. Such limits could adversely affect the profitability of the Trading Company and, consequently, of the Partnership. For example, the Trading Advisor could be required to liquidate futures positions at an unfavorable time in order to comply with such limits. However, the Trading Advisor does not believe that existing speculative position limits will materially adversely affect its ability to manage the Trading Company’s account.
Cash Flow. Futures contract gains and losses are marked-to-market daily for purposes of determining margin requirements. Option positions generally are not, although short option positions will require additional margin if the market moves against the position. Due to these differences in margin treatment between futures and options, there may be periods in which positions on both sides must be closed down prematurely due to short term cash flow needs. If this were to occur during an adverse move in a spread or straddle relationship, a substantial loss could occur.
Decisions Based on Trends and Technical Analysis. The trading decisions of the Trading Advisor will be based in part on trading strategies which utilize mathematical analyses of technical factors relating to past market performance. The buy and sell signals generated by a technical, trend-following trading strategy are based upon a study of actual daily, weekly and monthly price fluctuations, volume variations and changes in open interest in the markets. The profitability of any technical, trend-following trading strategy depends upon the occurrence in the future of significant, sustained price moves in some of the markets traded. The Trading Company and, consequently, the Partnership may incur substantial trading losses:
| • | during periods when markets are dominated by fundamental factors that are not reflected in the technical data analyzed by the program; |
| • | during prolonged periods without sustained moves in one or more of the markets traded; or |
| • | during “whip-saw” markets, in which potential price trends start to develop but reverse before actual trends are realized. |
In the past there have been prolonged periods without sustained price moves in various markets. Presumably, such periods will recur. A series of volatile reverses in price trends may generate repeated entry and exit signals in trend-following systems, resulting in unprofitable transactions and increased brokerage commission expenses. Technical, trend-following trading systems are used by many other traders. At times, the use of such systems may:
| • | result in traders attempting to initiate or liquidate substantial positions in a market at or about the same time; |
| • | alter historical trading patterns; |
| • | obscure developing price trends; or |
| • | affect the execution of trades. |
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Model and Data Risk. The Trading Advisor relies heavily on proprietary mathematical quantitative models (each a “Model” and collectively, “Models”) and data developed both by the Trading Advisor and those supplied by third parties (collectively, “Data”) rather than granting trade-by-trade discretion to the Trading Advisor’s investment professionals. In combination, Models and Data are used to construct investment decisions, to value both current and potential investments (including, without limitation, for trading purposes, and for the purposes of determining the Net Asset Value of the Partnership), to provide risk management insights and to assist in hedging the Partnership’s positions and investments. Models and Data are known to have errors, omissions, imperfections and malfunctions (collectively, “System Events”).
The Trading Advisor seeks to reduce the incidence and impact of System Events, to the extent feasible, through a combination of internal testing, simulation, real-time monitoring and the use of independent safeguards in the overall portfolio management process, often in the software code itself. Despite such testing, monitoring and independent safeguards, System Events will result in, among other things, the execution of unanticipated trades, the failure to execute anticipated trades, delays in the execution of anticipated trades, the failure to properly allocate trades, the failure to properly gather and organize available data, the failure to take certain hedging or risk reducing actions and/or the taking of actions which increase certain risk(s)—all of which may have materially adverse effects on the Partnership. System Events in third-party provided Data is generally entirely outside of the control of the Trading Advisor.
The research and modeling processes engaged in by the Trading Advisor on behalf of its managed funds is extremely complex and involves the use of financial, economic, econometric and statistical theories, research and modeling; the results of this investment approach must then be translated into computer code. Although the Trading Advisor seeks to hire individuals skilled in each of these functions and to provide appropriate levels of oversight and employ other mitigating measures and processes, the complexity of the individual tasks, the difficulty of integrating such tasks, and the limited ability to perform “real world” testing of the end product, even with simulations and similar methodologies, raise the chances that Model code may contain one or more coding errors, thus potentially resulting in a System Event and further, one or more of such coding errors could adversely affect the Partnership’s investment performance.
The investment strategies of the Trading Advisor are highly reliant on the gathering, cleaning, culling and performing of analysis of large amounts of Data. Accordingly, Models rely heavily on appropriate Data inputs. However, it is impossible and impracticable to factor all relevant, available Data into forecasts, investment decisions and other parameters of the Models. The Trading Advisor will use its discretion to determine what Data to gather with respect to each investment strategy and what subset of that Data the Models take into account to produce forecasts which may have an impact on ultimate investment decisions. In addition, due to the automated nature of Data gathering, the volume and depth of Data available, the complexity and often manual nature of Data cleaning, and the fact that the substantial majority of Data comes from third-party sources, it is inevitable that not all desired and/or relevant Data will be available to, or processed by, the Trading Advisor at all times. Irrespective of the merit, value and/or strength of a particular Model, it will not perform as designed if incorrect Data is fed into it which may lead to a System Event potentially subjecting the Partnership to a loss. Further, even if Data is input correctly, “model prices” anticipated by the Data through the Models may differ substantially from market prices, especially for financial instruments with complex characteristics, such as derivatives, in which the Partnership may invest.
Where incorrect or incomplete Data is available, the Trading Advisor may, and often will, continue to generate forecasts and make investment decisions based on the Data available to it. Additionally, the Trading Advisor may determine that certain available Data, while potentially useful in generating forecasts and/or making investment decisions, is not cost effective to gather due to, among other factors, the technology costs or third-party vendor costs and, in such cases, the Trading Advisor will not utilize such Data. The Trading Advisor has full discretion to select the Data it utilizes. The Trading Advisor may elect to use or may refrain from using any specific Data or type of Data in generating forecasts or making trading decisions with respect to the Models. The Data utilized in generating forecasts or making trading decisions underlying the Models may not be (i) the most accurate data available or (ii) free of errors. The Data set
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used in connection with the Models is limited. The foregoing risks associated with gathering, cleaning, culling and analysis of large amounts of Data are an inherent part of investing with a quantitative, process-driven, systematic adviser such as the Trading Advisor.
When Models and Data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose the Partnership to potential losses and such losses may be compounded over time. For example, by relying on Models and Data, the Trading Advisor may be induced to buy certain investments at prices that are too high, to sell certain other investments at prices that are too low, or to miss favorable opportunities altogether. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful and when determining the Net Asset Value of the Partnership, any valuations of the Partnership’s investments that are based on valuation Models may prove to be incorrect. In addition, Models may incorrectly forecast future behavior, leading to potential losses on a cash flow and/or a mark-to-market basis. Furthermore, in unforeseen or certain low-probability scenarios (often involving a market event or disruption of some kind), Models may produce unexpected results which may or may not be System Events.
Errors in Models and Data are often extremely difficult to detect, and, in the case of Models, the difficulty of detecting System Events may be exacerbated by the lack of design documents or specifications. Regardless of how difficult their detection appears in retrospect, some System Events may go undetected for long periods of time and some may never be detected. Finally, the Trading Advisor will detect certain System Events that it chooses, in its sole discretion, not to address or fix, and the third party software will lead to System Events known to the Trading Advisor that it chooses, in its sole discretion, not to address or fix. The degradation or impact caused by these System Events can compound over time. The Trading Advisor generally will not perform a materiality analysis on the potential impact of a System Event. The Trading Advisor believes that the testing and monitoring performed on Models will enable the Trading Advisor to identify and address those System Events that a prudent person managing a quantitative, systematic and computerized investment program would identify and address by correcting the underlying issue(s) giving rise to the System Events, however there is no guarantee of the success of such processes. Investors should assume that System Events and their ensuing risks and impact are an inherent part of investing with a process-driven, systematic investment manager such as the Trading Advisor.
Accordingly, the Trading Advisor does not expect to disclose discovered System Events to its investors. The Partnership will bear the risks associated with the reliance on Models and Data including bearing all losses related to System Events other than in relation to losses arising from the Trading Advisor’s willful misconduct, negligence or breach of fiduciary obligations.
Trade Systems and Execution of Orders. The Trading Advisor relies extensively on computer programs, systems, technology, Data and Models to implement its execution strategies and algorithms. The Trading Advisor’s investment strategies, trading strategies and algorithms depend on its ability to establish and maintain an overall market position in a combination of financial instruments selected by the Trading Advisor. There is a risk that the Trading Advisor’s proprietary algorithmic trading systems may not be able to adequately react to a market event without serious disruption. Further, trading strategies and algorithms may malfunction causing severe losses. While the Trading Advisor has employed tools to allow for human intervention to respond to significant system malfunctions, it cannot be guaranteed that losses will not occur in such circumstances as unforeseen market events and disruptions and execution system issues.
Orders may not be executed in a timely and efficient manner due to various circumstances, including, without limitation, trading volume surges or systems failures attributable to the Trading Advisor, the Trading Advisor’s counterparties, brokers, dealers, agents or other service providers. In such event, the Trading Advisor might only be able to acquire or dispose of some, but not all, of the components of such position, or if the overall position were to need adjustment, the Trading Advisor might not be able to make such adjustment. As a result, the Partnership would not be able to achieve the market position selected by the Trading Advisor, which may result in a loss.
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Trade Error Risk. The complex execution modalities operated by the Trading Advisor and the speed and volume of trading invariably result in occasional trades being executed which, with the benefit of hindsight, were not required or intended by the execution strategy or occasional trades not being executed when they should have been. To the extent a trade error is caused by counterparty, such as a broker, the Trading Advisor generally, to the extent reasonable and practical, attempts to recover any loss associated with such trade error from such counterparty. To the extent a trade error is caused by the Trading Advisor, a formalized process is in place for the documentation and resolution of such trade errors. Given the volume, diversity and complexity of transactions executed by the Trading Advisor on behalf of the Partnership, investors should assume that trade errors will occur on occasion. If such trade errors result in gains to the Partnership, such gains will generally be retained by the Partnership. However, if a trade error result in losses, they will be borne by the Trading Advisor in accordance with its internal policies unless otherwise determined by the General Partner.
Trading in OTC Markets Will Expose the Partnership to Risks Not Applicable to Trading on Organized Exchanges. The Partnership, through the Trading Company, may engage in OTC derivative transactions, such as: currency forward contracts traded in the interbank market; options on currency forward contracts; and swap transactions.
In general, there is much less governmental regulation and supervision of transactions in the OTC markets than of transactions entered into on organized exchanges. Most of the protections afforded to participants on U.S. and certain non-U.S. exchanges, such as daily price fluctuation limits and the performance guarantee of an exchange clearinghouse, will not be available in connection with OTC transactions.
Consequently, the Partnership will be exposed to greater risk of loss through default than if it confined its trading to organized exchanges.
A portion of the Partnership’s assets may be traded in forward contracts. Such forward contracts are generally not traded on exchanges and are executed directly through forward contract dealers. However, certain forward currency exchange contracts are regulated as swaps by the CFTC and have begun being voluntarily traded on swap execution facilities. Some of these contracts may be required to be centrally cleared by a regulated U.S. clearinghouse, and may be required to be traded on a regulated exchange in the future. There is no limitation on the daily price moves of forward contracts, and a dealer is not required to continue to make markets in such contracts. There have been periods during which forward contract dealers have refused to quote prices for forward contracts or have quoted prices with an unusually wide spread between the bid and asked price. Arrangements to trade forward contracts may therefore experience liquidity problems. The Partnership therefore will be subject to the risk of credit failure or the inability of or refusal of a forward contract dealer to perform with respect to its forward contracts.
When trading currency forward contracts, the Trading Company may hedge the foreign currencies in order to limit the Trading Company’s exposure to fluctuations in exchange rates. However, there is no guarantee that such hedging will be successful.
Enhanced Regulation of the OTC Derivatives Markets. The European Market Infrastructure Regulation (“EMIR”) seeks comprehensively to regulate the OTC derivatives market in Europe including, in particular, imposing mandatory central clearing, trade reporting and, for non-centrally cleared trades, risk management obligations on counterparties. Similarly, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”), enacted in July 2010, includes provisions that substantially increase the regulation of the OTC derivatives markets. The Reform Act requires that a substantial portion of OTC derivatives must be executed in regulated markets and be submitted for clearing to regulated clearinghouses, subject to margin requirements. OTC derivative dealers are also required to post margin to the clearinghouses through which they clear their customers’ trades instead of using such margin in their operations, as they are allowed to do for uncleared OTC trades. This will further increase the dealers’ costs, which costs may be passed through to other market participants in the form of higher fees and less favorable dealer marks. Although the Reform Act includes limited exemptions from the clearing and margin requirements for so-called “end-users”, the Partnership may not be able to rely on such exemptions. In addition, the OTC derivative dealers
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with which the Partnership executes the majority of its OTC derivatives will not be able to rely on the end-user exemptions under the Reform Act and therefore such dealers will be subject to clearing and margin requirements notwithstanding whether the Partnership is subject to such requirements. Taken together, these regulatory developments have increased and will continue to increase the OTC derivative dealers’ costs, and these increased costs are generally passed through to other market participants in the form of higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing account maintenance fees.
The CFTC also requires certain derivatives transactions that were previously executed on a bilateral basis in the OTC markets to be executed through a regulated futures or swap exchange or execution facility. Similarly, under EMIR, European regulators may require a substantial proportion of such derivatives transactions to be bought on exchange and/or centrally cleared. The Securities and Exchange Commission (the “SEC”) is also expected to impose similar requirements on certain security-based derivatives in the near future, though it is not yet clear when these parallel SEC requirements will go into effect. Such requirements may make it more difficult and costly for investment funds, including the Partnership and/or the Trading Company, to enter into highly tailored or customized transactions. The overall impact of EMIR and the Reform Act on the Partnership is highly uncertain and it is unclear how the OTC derivatives markets will adapt to these new regulatory regimes.
Exchanges for Physicals/Swaps/Risk. While not a regular practice for the Trading Company, it may in rare instances engage in transactions known as exchanges for physicals (“EFP”), exchanges for swaps (“EFS”), or exchanges for risk/OTC derivatives (“EFR”). An EFP/EFS/EFR is a purchase or sale of a spot commodity/swap/derivative, as applicable, in conjunction with an offsetting sale or purchase of a corresponding futures contract involving the same or equivalent underlying commodity or instrument, without making an open and competitive trade for the futures contract on the exchange. EFPs, EFSs and EFRs are a permitted exception to the general requirement of the Commodity Exchange Act, as amended, that all futures contracts must be competitively executed on an exchange. They are permitted pursuant to the rules of the relevant exchanges, which vary from exchange to exchange. If the EFP, EFS or EFR does not comply with specific exchange requirements, particularly regarding possessing documentation evidencing possession of the underlying commodity or instrument, then the CFTC or the exchange may deem the transaction to be an illegal off-exchange futures contract. In addition, every EFP, EFS or EFR involves the transfer of an underlying commodity or entry into a swap or derivative on a bilateral basis, as applicable, with a counterparty in exchange for a related cleared futures contract. There is, therefore, counterparty credit risk if the counterparty or its clearing member on the futures leg fails to perform. Unlike other futures contracts that are deemed cleared by the clearinghouse upon trade matching or at the end of the business day, futures contracts arising out of EFPs, EFSs or EFRs may, under various clearinghouse rules, not be deemed accepted by the clearinghouse until the next business day.
Options on Futures Contracts May Be More Volatile Than Futures Contracts. The Trading Advisor may trade options on futures contracts. Options are speculative in nature and are highly leveraged. The purchaser of an option risks losing the entire purchase price of the option. The seller (writer) of an option risks losing the difference between the premium received for the option and the price of the underlying futures contract that the writer must purchase upon exercise of the option. Additionally, the seller and writer of the options lose any commissions and fees associated with such transactions. This could subject the writer to unlimited risk in the event of an increase in the price of the contract to be purchased or delivered. Successful trading of options on futures contracts requires a trader to accurately determine near-term market volatility because it often has an immediate impact on the price of outstanding options. Accurate determination of near-term volatility is more important to successful options trading than it is to long-term futures contract trading strategies because such volatility generally does not have as significant an effect on the prices of futures contracts.
Trading on Non-U.S. Exchanges and Markets Will Expose the Partnership to Risks Not Applicable to Trading on U.S. Exchanges and Markets. The Partnership, through the Trading Company, may engage in trading on non-U.S. exchanges and markets. The Partnership will be subject to the risk of
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fluctuations in the currency exchange rate between the local currency and the U.S. dollar and to the possibility of exchange controls. Trading on such exchanges and markets generally involves other risks not applicable to trading on U.S. exchanges and markets.
For example, such exchanges and markets:
| • | may not provide the same assurances of the integrity (financial and otherwise) of the marketplace and its participants as do U.S. exchanges and markets; |
| • | may exercise less regulatory oversight and supervision over transactions and participants in transactions; |
| • | may not afford all participants an equal opportunity to execute trades; |
| • | may be subject to a variety of political influences and the possibility of direct governmental intervention; |
| • | may have different clearance and settlement procedures for transactions than U.S. exchanges and markets. There have been times when settlement procedures have been unable to keep pace with the volume of transactions on certain exchanges and markets, making it difficult to conduct trades; and |
| • | may be “principals’ markets” in which performance is the responsibility only of the member with whom the trader has dealt (the counterparty) rather than the responsibility of an exchange or clearing association. Each transaction on such an exchange or market may subject the Partnership to the risk of the counterparty’s credit failure or inability or refusal to perform its obligations. |
Institutional Risks. Institutions, such as the banks and brokers, will have custody of the assets of the Partnership. These firms may encounter financial difficulties that impair the operating capabilities or the capital position of the Partnership, the Trading Company or the General Partner.
Counterparty Risk. The Partnership will be subject to the risk of the inability of counterparties to perform with respect to transactions, particularly uncleared swap and currency forward transactions, whether due to insolvency, bankruptcy or other causes, which could subject the Partnership to substantial losses. In an effort to mitigate such risks, the General Partner and Trading Advisor will attempt to limit transactions to counterparties, which are established, well-capitalized and creditworthy.
Affiliated Parties — Conflicts of Interest. Under the terms of the Partnership’s Limited Partnership Agreement, the General Partner has the authority to engage trading advisors to make trading decisions for the Partnership. Since the Trading Advisor is an affiliate of the General Partner, the General Partner has a conflict of interest with respect to its responsibilities to manage the Partnership for the benefit of the Limited Partners, and to prevent violations of the Partnership’s trading policies and to monitor for excessive trading by the Trading Advisor. In addition, the General Partner has a conflict of interest with respect to its responsibility to review the trading performance of the Partnership and a disincentive to terminate the advisory relationship between the Trading Advisor and the Partnership. There have been no arm’s-length negotiations with respect to the management and incentive fees that the Trading Advisor will charge the Trading Company or with respect to the other terms of the advisory agreement entered into with the Trading Advisor.
MiFID II. Each of the European Union’s re-cast Markets in Financial Instruments Directive (2014/65/EU) (the “MiFID II Directive”), the delegated and implementing European Union (“EU”) regulations made thereunder, the laws and regulations introduced by Member States of the EU to implement the MiFID II Directive and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR” and, together with the MiFID II Directive, “MiFID II”) impose new regulatory obligations on the Trading Advisor. These regulatory obligations may impact on, and constrain the implementation of, the investment strategy of the Partnership and lead to increased compliance obligations upon and accrued expenses for the Trading Advisor and/or the Partnership.
Epidemics and Pandemics May Lead to Severe Market Disruptions and May Impair the Operational Capabilities of the Trading Advisor, the General Partner and the Partnership’s Service Providers. Since the mid-1990s, the world has seen a number of outbreaks of new viral illnesses of varying severity, including avian flus, Severe Acute Respiratory Syndrome (SARS), Middle East Respiratory Syndrome
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(MERS), the H1N1 Flu (Swine Flu), and COVID-19 caused by the novel Coronavirus known as SARS–CoV-2. The responses to these outbreaks have varied as has their impact on human health, local economies and the global economy, and it is impossible at the outset of any such outbreak to estimate accurately what the ultimate impact of any such outbreak will be. Protective measures taken by governments and the private sector, including the Trading Advisor and the General Partner, to mitigate the spread of any such illness, including travel restrictions and outright bans, mandatory business closures, quarantines, and work-from-home arrangements, may lead to, or may be expected to lead to, wide spread economic damage, resulting in severe disruptions in the markets in which the Partnership trades and, potentially, adversely affecting the Partnership’s profit potential; and the spread of any such illness within the offices of the Trading Advisor, the General Partner, the Partnership’s service providers, and/or the exchanges and other components of market infrastructure could severely impair the operational capabilities of the Trading Advisor, the General Partner, the Partnership’s service providers or various markets themselves resulting in harm to the Partnership’s business and its operating results.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
(a) The Partnership may sell Units of Limited Partnership Interests (“Units”) as of the first business day of any calendar month or at such other times as the General Partner may determine. On the first business day of January 2023, February 2023 and March 2023, the Partnership sold Class A Series 1 Units, exclusive of non-cash transfers, to existing and new Limited Partners in the amount of $422,050, $0 and $0, respectively. On the first business day of January 2023, February 2023 and March 2023, the Partnership sold Class A Series 2 Units, exclusive of non-cash transfers, to existing and new Limited Partners in the amount of $0, $0 and $0, respectively. On the first business day of January 2023, February 2023 and March 2023, the Partnership sold Class B Series 1 Units, exclusive of non-cash transfers, to existing and new Limited Partners in the amount of $436,434, $0 and $0, respectively. There were no underwriting discounts or commissions in connection with the sales of the Units described above.
(b) Not applicable.
(c) Pursuant to the Partnership’s Limited Partnership Agreement, a Limited Partner may redeem some or all of its Units as of the last business day of each calendar month at the then current month-end Net Asset Value. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed. The following table summarizes the amount of Units redeemed, exclusive of non-cash transfers, during the three months ended March 2023:
| Class A series 1 Units |
Class A Series 2 Units |
Class B series 1 Units |
||||||||||
| Date of Redemption: (last business day) |
Amount Redeemed: |
Amount Redeemed: |
Amount Redeemed: |
|||||||||
| January 2023 |
215,954 | — | — | |||||||||
| February 2023 |
25,000 | — | 174,864 | |||||||||
| March 2023 |
181,096 | — | 261,570 | |||||||||
| TOTAL |
422,050 | — | 436,434 | |||||||||
| Item 3. | Defaults upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
Not Applicable.
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| Item 5. | Other Information. |
None.
| Item 6. | Exhibits. |
The following exhibits are included herewith:
| Designation |
Description | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer | |
| 32.1 | Section 1350 Certification of Principal Executive Officer | |
| 32.2 | Section 1350 Certification of Principal Financial Officer | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
The following exhibits are incorporated by reference herein from the exhibits of the same description and number filed on January 28, 2008 with the Partnership’s Registration Statement on Form 10 (Reg. No. 000-53043).
| 3.1 | Certificate of Limited Partnership of Man-AHL Diversified I L.P. |
The following exhibit is incorporated by reference herein from the exhibit of the same description and number filed on August 13, 2014, for the quarterly period ended June 30, 2014, with the Partnership’s Quarterly Report on Form 10-Q.
| 10.1 |
The following exhibit is incorporated by reference herein from the exhibit of the same description and number filed on August 14, 2018, for the quarterly period ended June 30, 2018, with the Partnership’s Quarterly Report on Form 10-Q.
| 4.1 | Seventh Amended Limited Partnership Agreement of Man-AHL Diversified I L.P. |
The following exhibit is incorporated by reference herein from the exhibit of the same description and number filed on May 17, 2021, for the quarterly period ended March 31. 2021, with the Partnership’s Quarterly Report on Form 10-Q.
| 10.4 | Form of Omnibus US Selling Agreement between Man Investments (USA) Corp. and Man Investments Inc. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 19, 2023.
| Man-AHL Diversified I L.P. | ||
| (Registrant) | ||
| By: | Man Investments (USA) Corp. | |
| General Partner | ||
| By: | /s/ Doug Hamilton | |
| President and Principal Executive Officer | ||
| By: | /s/ Christopher Guarnotta | |
| Principal Financial Officer of Man Investments (USA) | ||
| Corp., the General Partner of Partnership | ||
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