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BLACKROCK HEDGE SELECTOR LTD: Interim Management Statement


Interim Management Statement - period from 1 July 2012 to 30 September 2012

To the members of BlackRock Hedge Selector Ltd

This interim management statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure & Transparency Rules. It should not be relied on by any other party for any other reason.

This interim management statement relates to the period from 1 July 2012 to 30 September 2012 and contains information that covers this period, and up to the date of publication of this interim management statement.

BlackRock Hedge Selector Ltd is a closed-ended investment company structured to issue a range of classes of Feeder Fund Shares, each of which will provide investors with exposure to the performance of an investment fund managed by BlackRock. The Company had total assets of £60.9m at 30 September 2012.

At present the Company only has one class of Feeder Fund Shares in issue, the UK Emerging Companies Shares, which provides investors with exposure to the performance of BlackRock UK Emerging Companies Hedge Fund Limited, a Cayman Islands domiciled fund managed by BlackRock which was launched in May 2004 and has a net asset value of $1.350 billion as at 30 September 2012 (source: BlackRock, unaudited).

In addition, the Company has in issue a class of Cash Fund Shares which provide, via investment in the BlackRock Institutional Sterling Liquidity Fund (a sub-fund of the Institutional Cash Series plc), exposure to a portfolio of short-term money market instruments. At 30 September 2012, the Institutional Sterling Liquidity Fund had a net asset value of £24.7 billion (source: BlackRock, unaudited). The Cash Fund Shares are designed partly as a conversion option for holders of Feeder Fund Shares who may wish, from time to time, to reduce their exposure to the BlackRock UK Emerging Companies Hedge Fund.

Stock Performance

31 July 31 August 30 September 28 September

2012 2012 2012 2009 to 30

September 2012*

UK Emerging Companies Shares

Share Price £1.195 £1.195 £1.2375

n/a Net Asset Value per share £1.25305 £1.26439 £1.27584

n/a Discount 4.6% 5.5% 3.0% n/a Share price performance (0.4%) 0.0% 3.6% 23.8% NAV performance 0.9% 0.9% 0.9% 27.6% NAV performance excluding 0.9% 0.9% 0.9% 28.6% launch costs Underlying hedge fund - 0.96% 0.90% 0.93% 30.5%** NAV performance Cash Fund Shares Share Price £0.99375 £1.00625 £1.00625

n/a Net Asset Value per share £1.01802 £1.01805 £1.01806

n/a Discount 2.4% 1.2% 1.2% n/a Share price performance (0.1)% 1.3% 0.0% 0.6% NAV performance 0.0% 0.0% 0.0% 1.8% Underlying cash fund - 0.72% 0.66% 0.62% 0.75%** monthly gross annualised yield

*launch 28 September 2009 ** based on published performance data from 30 September 2009 to 30 September 2012

Manager's Review

UK Emerging Companies Shares

The UK Emerging Companies NAV returned 2.7% over the three month period to 30 September 2012 in comparison to the underlying hedge fund, which returned 2.8%. The share price increased by 3.2% over the same period and the share rating stood at a discount of 3.0% at 30 September.

The BlackRock UK Emerging Companies Hedge Fund is an equity long short fund that focuses primarily on UK Small and Mid Cap Stocks but also invests up to 20% in FTSE 100 stocks. The Fund Managers use a bottom up fundamental approach to build the portfolio and leverage off the wider UK Equity research platform to drive investment decisions. The strategy seeks to identify companies with strong management expertise that will generate superior growth rates over time. The flexibility of smaller companies to adapt to changing market conditions is a place to add value when researched and positioned appropriately. The Fund seeks to

maximize total returns while limiting correlation to the broad UK equity market. We believe that the small and mid-cap UK market provides above-average long term growth and our objective is achieved through a research-intensive investment process and a risk-controlled, diversified portfolio.

Portfolio characteristics

Long Positions 86 Short Positions 89 Total Positions 175

Top 10 Long Holdings

Company Sector

Aveva Group Technology 2.6% Oxford Instruments Industrials 2.4% Senior Plc Industrials 2.3% Booker Group Consumer Services 2.0% Rathbone Brothers Financials 2.0% Ashtead Group Industrials 1.9% Victrex Basic Materials 1.9% SDL Technology 1.9% Brammer Industrials 1.8% Rotork Plc Industrials 1.7% Total 20.6%

Sector Breakdown

Sector Long Short Net Gross

% % % %

Basic materials 4.3 (2.2) 2.1 6.5 Consumer goods 3.3 (2.4) 0.9 5.7 Consumer services 11.6 (9.1) 2.5 20.7 Financials 7.0 (3.7) 3.3 10.7 Health Care 2.8 (1.5) 1.3 4.3 Index 0.0 (0.0) 0.0 0.0 Industrials 25.1 (17.5) 7.6 42.6 Oil & Gas 3.5 (1.0) 2.5 4.5 Technology 10.5 (1.1) 9.4 11.6 Telecommunications 0.0 (0.5) (0.5) 0.5 Utilities 0.0 (0.4) (0.4) 0.4 Total 68.1 (39.4) 28.7 107.5

Market Cap Breakdown

Market cap Long Short Net Gross

% % % %

Index 0.0 (0.0) 0.0 0.0 0-0.1bn 7.6 (0.0) 7.6 7.6 0.1-0.25bn 8.0 (1.8) 6.2 9.8 0.25-0.5bn 8.1 (6.5) 1.6 14.6 0.5-1bn 18.2 (8.2) 10.0 26.4 1-2.5bn 22.6 (11.0) 11.6 33.6 2.5bn + 3.6 (11.9) (8.3) 15.5 Total 68.1 (39.4) 28.7 107.5

Cash Fund Shares

The Cash Fund NAV performance was flat over the three month period to 30 September 2012 and the share price had increased by 1.2%.

The underlying Institutional Sterling Liquidity Fund seeks to maximise current income consistent with the preservation of principal and liquidity through the maintenance of a portfolio of high quality short-term "money market" instruments, and returned an annualised yield of 0.67% over the three months to 30 September 2012.

The portfolio invests exclusively in first-tier securities, which include commercial paper, certificates of deposit, floating rate notes, time deposits and fully collateralised repurchase agreements. The fund must maintain 50% of its holdings with a short term rating of A1+/P1 with the remainder in A1/P1.

Portfolio characteristics

Portfolio composition % S&P Rating %

Financial Company Commercial Paper 33 A-1+ 60 Certificates of Deposit 21 A-1 40 Fixed or floating medium term notes* 20 Government Agency 8 Time Deposits 5 Asset backed Commercial Paper 5 Treasury debt 5 Commercial paper 3 Total 100 100

* Issued by banks or corporates

Maturity distribution


1-7 17% 8-30 18% 31-90 46% 91-180 18% 180+ days 1% Total 100%

Share Conversion between Share Classes

The Company's Articles of Association provide for holders of UK Emerging Companies Shares to convert all or part of their holding into Cash Fund Shares on a quarterly basis. Conversion requests in respect of 1,562,400 shares were received in respect of the September 2012 Share Conversion Date for UK Emerging Companies Shares to be converted into Cash Fund Shares. Based on a conversion factor of 1.252405, a total of 1,956,758 Cash Fund shares were issued, and admitted to trading on 10 October 2012. The deadline for receipt of the December 2012 conversion elections for the UK Emerging Companies Share Class was 18 October 2012, and as at this date conversion elections had been received in respect 2,675,000 UK Emerging Companies Shares.

The deadline for the next UK Emerging Companies Shares conversion date of 31 March 2013 would normally be 19 January 2013, but as announced on 15 November 2012, this conversion facility is not currently available. Further information is given below.

Cash Fund Shareholders also previously had the ability to switch into UK Emerging Companies Shares once a year on the September Conversion date. The deadline for Cash Fund Shareholders to elect to convert into UK Emerging Companies Shares was 19 September 2012 and no Cash Fund Shareholders elected to convert. This facility is also unavailable at present as announced on 15 November 2012 and as detailed below.

Material Events & Transactions

Cash Fund Share Class - Breach of Public Hands Test

As previously announced, and further to a transaction in the Company's Cash Fund Shares, the Cash Fund Shares ceased to be compliant with the “Public Hands” requirement of the UK Listing Rules (which, broadly, stipulates that 25 percent of the shares of each class in a listed company should be held by shareholders who are neither Directors nor holders who own more than a 5 percent holding each). This development has been notified to the UK Listing Authority (`UKLA') and the Jersey Financial Services Commission. Shares in the UK Emerging Companies Share Class remain compliant with the UK Listing Rules and retain their listed status.

On 6 November 2012 the Company received a written notice on behalf of BNP Paribas Arbitrage ("BNPPA") requiring the Company to offer a Cash Exit to the holders of Cash Fund Shares. BNP Paribas Arbitrage is the holder of 3,799,634 Cash Fund Shares (which is equal to 97.98 per cent. of the total number of Cash Fund Shares in issue as at the date of this announcement). This Cash Exit was requested under the provision within the Company’s Articles of Association that stipulates that holders of the issued shares of any class may, with the consent in writing of the holders of two-thirds of the issued shares of that class, require the Directors to provide holders of the shares of that class with the opportunity to dispose of such shares for a cash amount equal to the proceeds of realising the net assets of the Company attributable to such shares (less the costs of implementing such disposal and any other deductions that the Directors consider appropriate).

However, to address the fact that the Cash Fund Share Class is no longer compliant with the “Public Hands” requirements of the UK Listing Rules, the Board announced on 15 November 2012 that, subject to the requisite regulatory approvals and clearances being obtained, and pursuant to the Company's Articles of Association, it currently intends to compulsorily redeem all Cash Fund Shares in issue after the next share conversion between the UK Emerging Company Shares and the Cash Fund Shares has been implemented on 31 December 2012. This compulsory redemption is expected to be completed in January 2013. Consequently, it will not be possible for shareholders to elect to convert UK Emerging Company Shares in to Cash Fund Shares at the March 2013 conversion date (the deadline for which has previously been announced as 19 January 2013), or to make subsequent conversion elections.

The Board recognises the importance that shareholders place on the liquidity and discount control mechanism provided by the Cash Fund switching facility. Given the developments outlined above, the Board is considering proposals for an enhanced discount control and liquidity mechanism and a further announcement will be made as soon as practicable.

Share buy backs

On 24 August, the Company bought back 300,000 UK Emerging Companies Shares of no par value to be held in treasury at a price of 118.50p.

Interim Dividend - Cash Fund Share Class

An interim dividend of 1.805 pence per Cash Fund Share was declared on 25 October 2012, payable on 28 November 2012 to shareholders on the register on 2 November 2012 (ex-dividend date: 31 October 2012).

Net Asset Value

The Company announces its NAV on a weekly basis, which can be accessed via the London Stock Exchange website.

The unaudited net asset value, share price and share rating for BlackRock Hedge Selector Ltd's respective Share Classes at close of business on 9 November 2012 were:

UK Emerging Companies Shares: NAV:127.541p Share price:126.25p Discount:1.0%

Cash Fund Shares: NAV:99.965p Share price:100p Premium:0.04%

Annual General Meeting

The Company's third Annual General Meeting was held on 3 July 2012. All resolutions were passed.

Interim Results

The Company announced its interim results for the 6 months ended 30 June 2012 on 21 August 2012.

There were no other material events or transactions, except as disclosed above, during the three months to 30 September 2012, or up to the date of this announcement, nor was the Company involved in any other material transactions during the period except the purchase and sale of securities undertaken in the normal course of its business.

BlackRock (Channel Islands) Limited Secretary

16 November 2012


-0- Nov/16/2012 16:32 GMT

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