News Column

CAVENDISH FUTURES FUND LLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 14, 2014

Liquidity and Capital Resources

The Fund does not engage in sales of goods or services. Its only assets are its investment in the Master Fund, cash and receivables from the Master Fund. The Master Fund does not engage in the sale of goods or services. The Master Fund's only assets are its equity in its trading accounts, consisting of cash, net unrealized appreciation on open futures contracts and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Fund, through its investment in the Master Fund. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the second quarter of 2014.

For the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013, the Master Fund's average margin to equity ratio was 12.41% and 10.57%, respectively.

The Fund's capital consists of the capital contributions of the Members as increased or decreased by income/(loss) from its investment in the Master Fund and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the six months ended June 30, 2014, the Fund's capital increased 55.6% from $46,935,428 to $73,028,340. This increase was attributable to subscriptions for Redeemable Units totaling $25,777,250, coupled with a net gain from operations of $2,000,198, which was partially offset by redemptions of Redeemable Units resulting in an outflow of $1,684,536. Future redemptions from the Fund could impact the amount of funds available for investment in the Master Fund in subsequent periods.

The Master Fund's capital consists of the capital contributions of the investors of the Master Fund as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income, withdrawals of interest from the Master Fund and distributions of profits, if any.

For the six months ended June 30, 2014, the Master Fund's capital increased 55.4% from $47,033,777 to $73,081,297. This increase was attributable to subscriptions for interest in the Master Fund totaling $25,777,250, coupled with a net gain from operations of $3,479,455, which was partially offset by the withdrawal of interest in the Master Fund resulting in an outflow of $3,209,185. Future withdrawals from the Master Fund can impact the amount of funds available for investments in commodity contract positions in subsequent periods.

Critical Accounting Policies



The preparation of financial statements in conformity with U.S. GAAP requires Sydling to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Sydling believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Fund's significant accounting policies are described in detail in Note 6. "Significant Accounting Polices."

The Fund records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains/(losses) and change in net unrealized gains/(losses) in the Statements of Operations and Changes in Members' Capital.

Results of Operations



During the Fund's second quarter of 2014, the net asset value per Redeemable Unit decreased 3.99% from $1,017.76 to $1,058.32. The Fund, for its own account, through its investment in the Master Fund, experienced a net trading gain before brokerage fees and related fees in the second quarter of 2014 of $4,525,034. Gains were primarily attributable to the Master Fund's trading of commodity futures in non-U.S. interest rates, livestock and indices and were partially offset by losses in grains, metals, energy, softs and U.S. interest rates.

The Cavendish Fund delivered strong returns as most global equity markets made new highs and bond spreads grinded tighter. Janet Yellen, Chair of the US Federal Reserve Board, continued to maintain a willingness toward accommodative policy as the US Federal Reserve are now expecting the US economy to expand at a slower rate than previously anticipated. The European Central Bank opened the door to potential large-scale asset purchases in an effort to battle below target inflation. Additionally, Mario Draghi,

17 --------------------------------------------------------------------------------



Table of Contents

President of the European Central Bank, cut all key interest rates including the bold move of negative deposit rates. Significant long exposure to European and US equity markets contributed to the gains as a number of US equity indices printed record highs. Long fixed income positions profited where the German Bunds provided significant contribution. Continued momentum for sterling which reached its highest exchange value against the dollar for over five years also helped the Fund's long S&P, bund and pound positions.

Regional instability contributed to rising precious metal values and subsequent losses for the Fund's short positions in this sector whilst conflicts threatening refinery output supported oil prices and benefited a long crude position. Grain markets retreated as recent trends reversed by the middle of the quarter. Improving weather conditions in the US and Russia led to double digit declines in the price of Wheat and Corn, which adversely affected the Fund's performance. Towards quarter end, corn prices continued their recent fall with high inventory levels and anticipation of record harvest being confirmed in the US.

During the Fund's second quarter of 2013, the net asset value per Redeemable Unit decreased 1.9% from $1,005.86 to $986.41. The Fund, for its own account, through its investment in the Master Fund, experienced a net trading loss before brokerage fees and related fees in the second quarter of 2013 of $537,037. Losses were primarily attributable to the Master Fund's trading of commodity futures in U.S and non-U.S. interest rates, currencies, indices and energy, grains and softs and were partially offset by gains in metals, grains and softs.

Commodity futures markets are highly volatile. Broad and rapid price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility for profit or loss. The profitability of the Fund (and the Master Fund) depends on the Advisor's ability to forecast price changes in energy and energy-related commodities. Such price changes are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that the Advisor correctly makes such forecasts, the Fund (and the Master Fund) expects to increase capital through operations.

Brokerage fees are calculated as a percentage of the Fund's capital account balance at the Master Fund as of the end of each month and are affected by trading performance and redemptions. Brokerage, clearing and transaction fees of the Master Fund for the three months ended June 30, 2014 and 2013 were $649,600 and $326,815, respectively. Brokerage, clearing and transaction fees of the Master Fund for the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013 were $1,142,310 and $438,569, respectively. The increase in brokerage, clearing and transaction fees for the three and six months ended June 30, 2014 is due to higher average net assets as compared to the corresponding periods in 2013.

Advisory fees are calculated as a percentage of the Fund's net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions.

Advisory fees of the Fund for the three months ended June 30, 2014 and 2013 were $270,264 and $134,656, respectively. The calculation of advisory fees for the three months ended June 30, 2014 and 2013 was based on a monthly average net asset value of $72,070,388 and $35,908,413, respectively. The increase in advisory fees for the three months ended June 30, 2014 as compared to the corresponding period in 2013 is due to an increase in the average net assets.

Advisory fees of the Fund for the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013 were $474,685 and $180,176, respectively. The calculation of advisory fees for the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013 was based on a monthly average net asset value of $63,291,371 and $32,144,499, respectively. The increase in advisory fees for the six months ended June 30, 2014 as compared to the corresponding period in 2013 is due to an increase in the average net assets.

Administrative fees are paid to Sydling for administering the business and affairs of the Fund. These fees are calculated as a percentage of the Fund's net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions.

Administrative fees of the Fund for the three months ended June 30, 2014 and 2013 were $90,088 and $44,886, respectively. The calculation of administrative fees for the three months ended June 30, 2014 and 2013 was based on a monthly average net asset value of $72,070,388 and $35,908,413, respectively. The increase in administrative fees for the three months ended June 30, 2014 as compared to the corresponding period in 2013 is due to an increase in the average net assets.

Administrative fees of the Fund for the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013 were $158,228 and $60,059, respectively. The calculation of administrative fees for the six months ended June 30, 2014 and the period from February 19, 2013 (commencement of trading operations) to June 30, 2013 was

18 --------------------------------------------------------------------------------



Table of Contents

based on a monthly average net asset value of $63,291,371 and $32,144,499, respectively. The increase in administrative fees for the six months ended June 30, 2014 as compared to the corresponding period in 2013 is due to an increase in the average net assets.

Incentive fees to the Advisor are based on the new trading profits generated by the Advisor, paid at the end of each quarter, as defined in the Trading Advisory Agreement between the Fund, Sydling and the Advisor. An incentive fee of $724,094 was earned for the six months ended June 30, 2014. There was no incentive fee earned for the period from February 19, 2013 (commencement of trading operations) to June 30, 2013.

In allocating substantially all of the assets of the Fund to the Master Fund, Sydling considers the Advisor's past performance, trading style, volatility of markets traded and fee requirements. Sydling may modify or terminate the allocation of assets to the Advisor at any time.

19 --------------------------------------------------------------------------------



Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters