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WisdomTree Hedged Metal Securities
Limited
Registered No: 108311
Annual Report and Audited Financial Statements for the
Year ended 31 December 2022
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Management and Administration
1
Directors’ Report
2-9
Statement of Directors’ Responsibilities
10
Independent Auditor’s Report
11-18
Statement of Profit or Loss and Other Comprehensive Income
19
Statement of Financial Position
20
Statement of Cash Flows
21
Statement of Changes in Equity
22
Notes to the Financial Statements
23-42
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Directors
Administrator
Registered Office
Registrar
Manager
Trustee
FX Counterparty
Custodian
Auditor
Jersey Legal Advisers
Company Secretary
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The directors of WisdomTree Hedged Metal Securities Limited (“HMSL” or the “Company”) submit herewith the
annual report and financial statements of the Company for the year ended 31 December 2022.
Directors
The names and particulars of the directors of the Company during and since the end of the financial year are:
Directors’ Interests
No director has an interest in the Shares of the Company as at the date of this report.
Principal Activities
The Company’s principal activity is the issue and listing of currency-hedged metal securities (“Currency-
Hedged Metal Securities”). Currency-Hedged Metal Securities allow investors to gain a currency hedged
exposure to the precious metals market without needing to take physical delivery of the physical metal or enter
into currency hedge transactions. It also allows investors to buy and sell that interest through the trading of a
security on the London Stock Exchange and any other exchange to which that security may be admitted to
trading from time to time.
Each Currency-Hedged Metal Security is denominated in a specified currency and is backed by physical metal
(“Metal Bullion”) which is held in custody by designated custodians, supported by one or more Metal
Adjustment Agreements (and “Metal Adjustment Contracts” entered into pursuant thereto) with one or more FX
Counterparties (currently the only FX Counterparty is Morgan Stanley & Co. International plc (“Morgan
Stanley”)) which provide a currency hedging overlay.
The Metal Bullion is the subject of fixed and floating charges in favour of the Trustee, and once deposited, may
only be removed after approval from the Trustee. A holder of a Currency-Hedged Metal Security is entitled to
require the redemption of that Currency-Hedged Metal Security and receive an amount of Metal Bullion equal to
the Metal Entitlement on the date of redemption (and subject to applicable redemption fees). This redemption
may occur:
through an appropriate counterparty (such as an authorised participant); or
in the case of any other holder – only in circumstances where there are no authorised participants (or
otherwise as determined by the Company), and where the holder meets certain requirements,
including but not limited to the holder not being an Undertaking for Collective Investment in
Transferable Securities (“UCITS”).
The amount of Metal Bullion and Metal Adjustment Contracts held by the Company will be calculated in
accordance with an agreed formula published in the Prospectus equivalent to the entitlement (the “Metal
Entitlement”) of each class of Currency-Hedged Metal Security. The Metal Entitlement is adjusted daily by an
amount of bullion (the “Daily Hedging Variation”), which reflects the daily movement of an index, tracking the
variation in the exchange rate between United States Dollars and the currency of denomination of that class of
Currency-Hedged Metal Security, as well as being adjusted for the deduction of applicable fees (see below).
The Company earns a management and hedging fee by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount (the “Management Fee” and the
“Hedging Fee”). A fee equivalent to the Hedging Fee is paid to the FX Counterparty (the “FX Counterparty
Fee”).
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating
to the listing and issue of Currency-Hedged Metal Securities. In return for these services, the Company
has an obligation to remunerate ManJer with an amount equal to the aggregate of the Management Fee and
the creation and redemption fees earned (the “ManJer Fee”). The Metal Bullion in respect of the Management
Fee and Hedging Fee is transferred in the form of bullion on a monthly basis (in arrears) following agreement
from the Trustee from the Company’s custodian accounts directly to ManJer (and ManJer transfers the Metal
Bullion in respect of the Hedging Fee to the FX Counterparty). In addition, creation and redemption fees are
transferred directly to ManJer and there are no cash flows through the Company.
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Review of Operations
The most recent Prospectus was issued on 23 November 2022. As at 31 December 2022, the Company had
the following classes of Currency-Hedged Metal Securities in issue and admitted to trading on the following
exchanges:
The Company holds Metal Bullion and enters into Metal Adjustment Contracts to support the Currency-Hedged
Metal Securities as determined by the Metal Entitlement. Metal Bullion and Metal Adjustment Contracts are
marked to fair value at the end of each Pricing Day by reference to the spot rate for Metal Bullion, as published
by the London Bullion Market Association (“LBMA”) and the MSPM indices published by Morgan Stanley
(referred to within these financial statements as the “Contractual Value”). The reference price used to convert
the value of the currency hedge into a quantity of Metal Bullion is the spot rate for Metal Bullion as published by
the LBMA. As at 31 December 2022 the Company held 836,289.574 troy ounces of gold (2021: 978,338.519
troy ounces) with a fair value of USD 1,515,640,090 (2021: USD 1,780,668,936).
The Company has entered into an overdraft agreement with the custodian in respect of each class of Currency-
Hedged Metal Securities which each allow for the loan of up to one bullion bar of gold (collectively the
“Overdraft Facility”). The Overdraft Facility is denominated in ounces of Metal Bullion, repayable in ounces of
Metal Bullion equivalent to the Metal Bullion on Loan. The Overdraft Facility is recorded at the fair value of the
ounces of Metal Bullion using the latest price published by the LBMA and changes in fair value are recognised
through profit or loss.
The Company has entered into contractual obligations to issue and redeem Currency-Hedged Metal Securities
in exchange for Metal Bullion as determined by the Metal Entitlement of each class of Currency-Hedged Metal
Security on each trading day. The Metal Bullion in respect of each creation and redemption is recorded using
the price published by the LBMA on the transaction date.
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider the stock exchanges where the Currency-Hedged Metal Securities are
listed to be the principal market and as a result the fair value of the Currency-Hedged Metal Securities is the on-
exchange price as quoted on the stock exchange demonstrating active trading with the highest trading volume
on each day that the price is obtained. As a result of the difference in valuation between the Metal Bullion,
Metal Adjustment Contracts and Currency-Hedged Metal Securities, there is a mis-match between the values
recognised, and the results of the Company reflect a gain or loss on the difference between the value of the
Metal Bullion and the Metal Adjustment Contracts (through the application of the price published by the LBMA
against the Metal entitlement, referred to within these financial statements as the “Contractual Value”) and the
price of Currency-Hedged Metal Securities.
The gain or loss on Currency-Hedged Metal Securities and Metal Bullion together with the Metal Adjustment
Contracts are recognised through profit or loss in line with the Company’s accounting policy. This is presented
in more detail in notes 7 and 8 to these financial statements.
The Company is entitled to:
Management Fees and Hedging Fees calculated by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount; and
Creation and redemption fees on the issue and redemption of the Currency-Hedged Metal Securities.
The Management Fee and Hedging Fee rates for each class of Currency-Hedged Metal Security are:
(1) Hedging Fee was previously 0.45% p.a. and was reduced effective from 23 September 2022.
(2) Hedging Fee was previously 0.35% p.a. and was reduced effective from 23 September 2022.
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Review of Operations (continued)
During the year, the Company generated income from Management Fees, Hedging Fees and creation and
redemption fees as follows :
The change in Metal Entitlement of each class of Currency-Hedged Metal Security reduces the value of the
Currency-Hedged Metal Securities. This reduction equates to the Management Fee and Hedging Fee amount
in Metal Bullion, that is recognised for that day per each Currency-Hedged Metal Security in issue on that day.
The Management Fees and Hedging Fees are accrued and recognised on a daily basis until invoiced and
settled by transfer of the Metal Bullion. The amount recognised as income is calculated by applying the
average LBMA Price to the total Management Fee and Hedging Fee accrued on a monthly basis.
The Hedging Fees received are recharged by and paid to the FX Counterparty.
Non-GAAP Performance Measures
Under the terms of the service agreement with ManJer, the Company accrued expenses equal to the
management fees and the creation and redemptions fees, which, after taking into account other operating
income and expenses, resulted in a result before fair value movements for the year of USD Nil (2021: USD Nil).
As the difference in the valuation of Metal Bullion (held to support the Currency-Hedged Metal Securities) and
Currency-Hedged Metal Securities would be reversed on a subsequent redemption of the Currency-Hedged
Metal Securities and transfer of the corresponding Metal Bullion (as described further in note 16), the Company
presents an adjusted Statement of Profit or Loss and Other Comprehensive Income and an adjusted Statement
of Changes in Equity in note 16 of the financial statements.
Ukraine Invasion
On 24 February 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”). The
Crisis has resulted in the implementation of sanctions and further actions by governments which, as well as the
Crisis itself, have impacted financial and commodities markets. In response to sanctions imposed on Russia by
the United Kingdom, United States and European Union, on 7 March 2022 the LBMA suspended six Russian
refiners (the “Russian Refiners”) from the Good Delivery List (the “Suspension”). As a result of the Suspension,
Metal Bullion bars produced after 7 March 2022 by the Russian Refiners will not be considered Good Delivery
unless and until the LBMA further amends its Good Delivery Rules. In line with the LBMA’s Good Delivery
Rules, Metal Bullion bars received from the Russian Refiners prior to 7 March 2022 still fall within the Good
Delivery Rules and can be traded within the London Good Delivery system. Prior to the Suspension, the
Company received and continues to hold gold from five Russian Refineries; in line with the Good Delivery
Rules, these bars meet the Good Delivery Rules and constitute Good Delivery.
The Company will only accept Metal Bullion bars which constitute Good Delivery and meet the Good Delivery
Rules set by the LBMA. Therefore, as a result of the Suspension, the Company does not accept Metal Bullion
bars that the Russian Refineries produced after 7 March 2022 (until there is an amendment to the Good
Delivery Rules). This may impact the price and liquidity of existing and newly sourced Good Delivery Metal
Bullion bars and hence may adversely affect the trading market and price for Metal Securities and may cause
the value of Metal Securities to decline or increase in value.
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Review of Operations (continued)
Ukraine Invasion (continued)
As the Crisis continues, the board of directors (the “Board”) also continues to closely monitor and assess the
impact on the Company’s portfolio operations and valuation and will take any further actions needed or as
required under the terms of the Prospectus, as facts and circumstances are subject to change and may be
specific to investment strategies and jurisdictions. Whilst it is not currently possible to predict future market
conditions and therefore determine if any further action may be required, the action that may be required
includes, but is not limited to, temporarily not accepting applications for Metal Securities, temporarily
suspending Metal Securities from trading on Stock Exchanges or a compulsory redemption of Metal Securities.
The Company has not initiated any of these further actions to date (see Future Developments below for other
actions taken). Any such action will be undertaken in accordance with the constitutive documents of the Metal
Securities.
Coronavirus disease (COVID-19)
The Board continues to monitor the advice and developments relating to COVID-19. The WisdomTree group
has and continues to implement measures to maintain the ongoing safety and well-being of employees, whilst
continuing to operate business as usual.
Future Developments
The Board are not aware of any other developments that might have a significant effect on the operations of the
Company in subsequent financial periods not already disclosed in this report or the attached financial
statements.
Going Concern
The nature of the Company’s business dictates that the outstanding Currency-Hedged Metal Securities may be
redeemed at any time by Authorised Participants and in certain circumstances by individual holders and also, in
certain circumstances, may be compulsorily redeemed by the Company. As the redemption of Currency-
Hedged Metal Securities will always coincide with the transfer of an equal amount of Metal Bullion, liquidity risk
is mitigated such that there is no material residual risk. All other expenses of the Company are met by ManJer.
The directors closely monitor the financial position and performance of ManJer, its assets under management,
and therefore its related revenue streams, in respect of fulfilling the obligations under the services agreement.
The net reported position on balance sheet, including in instances where a deficit is reported, is not considered
to impact the going concern position of the Company as this position results solely due to the unrealised gains
or losses on Metal Bullion and Currency-Hedged Metal Securities due to the accounting measurement basis
applied in accordance with IFRS. As Metal Bullion are held to support Currency-Hedged Metal Securities, any
deficit or surplus reported on unrealised positions would be reversed on a subsequent redemption of the
Currency-Hedged Metal Securities and the related cancellation of Metal Bullion. A reported deficit is not
considered indicative of any issues relating to solvency of the Company and the directors are satisfied that any
obligations arising in respect of the Currency-Hedged Metal Securities can be managed in accordance with the
terms of the applicable Prospectus. The directors consider the operations of the Company to be ongoing, with a
reasonable expectation that the Company has adequate resources to continue in operational existence until 30
April 2024, and accordingly these financial statements have been prepared on the going concern basis.
Dividends
There were no dividends declared or paid in the year (2021: USD nil). It is the Company’s policy that dividends
will only be declared when the directors are of the opinion that there are sufficient distributable reserves.
Corporate Social Responsibility
Sustainability and corporate responsibility are embedded throughout the business of the WisdomTree group as
we believe this benefits shareholders and employees of the WisdomTree group, investors in WisdomTree’s
products as well as wider society.
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Corporate Social Responsibility (continued)
Environmental, Social and Governance (“ESG”) investing is guided at the WisdomTree Inc, group level by an
ESG Steering Committee, which includes senior leaders from across the WisdomTree Inc, group business, and
which included several sub-committees focused on particular ESG considerations, such as improving data and
transparency into the ESG attributes of WisdomTree’s products.
Particular ESG considerations relevant to the Company’s products are overseen by the directors, leveraging
the work undertaken by the ESG Steering Committee. More information on WisdomTree’s corporate social
responsibility strategy can be found on the WisdomTree website (https://www.wisdomtree.eu/en-
gb/wisdomtree-corporate-responsibility).
The Board acknowledges that climate change and its impact on the global economy is of increasing interest
and focus for stakeholders and that, where relevant, stakeholders will seek information from companies
regarding how climate change is expected to impact the operations of the business and how climate change
risk has been considered in the context of reported results.
In acknowledging the above, the Board has considered the Company’s exposure to climate change and
determined that due to the nature of the Company and its operations there are no directly observed impacts of
climate change on the business. As a result, the Board concluded that there is no basis on which to provide
extended information of analysis relating to climate change, including as part of the basis of accounting or
individual accounting policies adopted by the Company.
In the above determination, the Board has concluded specifically that climate change, including physical and
transition risks, does not have a material impact on the recognition and separate measurement considerations
of the assets and liabilities in these financial statements as at 31 December 2022.
This conclusion is based on the fact that assets are reported at fair value under IFRS, and as set out in note 13
are categorised as level 2 due to the use of observable, verifiable inputs and third party information sources.
The liabilities are valued utilising listed market prices at the period end. These observable inputs and market
prices will reflect wider market sentiment, which inherently includes market perspectives relating to the impact
of climate change.
The Board recognises that government and societal responses to climate change risks are still developing and
the future impact cannot be predicted. Future valuations of assets and liabilities may therefore differ as the
market responds to these changing impacts or assesses the impact of current requirements differently.
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees within
the WisdomTree, Inc group do not receive separate remuneration in their capacity as directors of the Company.
The directors of the Company who are employees of R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) do not receive separate remuneration in their capacity as directors of the Company, however
R&H receives a fee from ManJer which includes services in respect of the Company, including for the provision
of directors who are employees of R&H.
Prior to 30 June 2022, R&H specified the fees for the provision of Steven Ross and Christopher Foulds as
directors at £8,000 per annum. Following a restructuring of the fee methodology effective from 1 July 2022, the
fee for the provision of Steven Ross and Christopher Foulds as directors is not separately identified and
accordingly, no directors’ fees are separately disclosed.
Employees
The Company does not have any employees. It is the Company’s policy to use the services of specialist
subcontractors or consultants as far as possible.
Auditor
The Independent Auditor is Ernst & Young LLP. A resolution to re-appoint Ernst & Young LLP will be proposed
at the next Board meeting of the directors.
Principal Risks and Uncertainties
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Principal Risks and Uncertainties (continued)
The Currency-Hedged Metal Securities provide investors with exposure to precious metals. Each Currency-
Hedged Metal Security is a debt instrument whose redemption price is linked to the value of the relevant
underlying Metal Bullion and Metal Adjustment Contracts. Each class of Currency-Hedged Metal Securities is
issued under limited recourse arrangements whereby the holders have recourse only to the relevant Metal
Bullion and Metal Adjustment Contracts held to support the Currency-Hedged Metal Security and not to the
Metal Bullion and Metal Adjustment Contracts of any other class of Currency-Hedged Metal Security or the
Company.
Any movements in the value of the Metal Bullion and Metal Adjustment Contracts are wholly attributable to the
holders of the Currency-Hedged Metal Securities, therefore Company has no residual exposure to movements
in the value of the Metal Bullion and Metal Adjustment Contracts. From a commercial perspective the
Company does not retain any net gains or losses or net risk exposures, as (with the exception of the impact of
the Management Fee and the Hedging Fee) the gains or losses on the liability represented by the Currency-
Hedged Metal Securities are matched economically by corresponding losses or gains attributable to the Metal
Bullion and Metal Adjustment Contracts (see detail on page 3 regarding the accounting mis-match).
Furthermore, the Company has an obligation to remunerate ManJer with the ManJer Fee, which results in the
Company recognising a result before fair value movements of nil for each period. As a result, the principal risks
and uncertainties to which the Company is exposed has not materially changed during the year ended 31
December 2022.
There is an inherent risk from the point of view of investors as the values of Metal Bullion, and thus the value of
the Currency-Hedged Metal Securities, may vary widely due to, amongst other things, changing supply and
demand for Metal Bullion, government and monetary policy or intervention, interest rate levels and global or
regional political, economic or financial events..
The Company has exposure to country and currency risk as the Currency-Hedged Metal Securities are priced
in US Dollars and hedged against exchange rate movements between the US Dollar and the Euro or Pound
Sterling. However, the directors do not consider the Company to have a significant net exposure to country and
currency risk as the gains or losses on the liability represented by the Currency-Hedged Metal Securities are
matched economically by corresponding losses or gains attributable to the Metal Bullion and Metal Adjustment
Contracts.
The market price of Currency-Hedged Metal Securities is (and will remain) a function of supply and demand
amongst investors wishing to buy and sell Currency-Hedged Metal Securities and the bid or offer spread that
the market makers are willing to quote.
The fair value the Currency-Hedged Metal Securities as at 31 December amounted to:
Further information on the contractual value of the Currency-Hedged Metal Securities on a daily basis can be
found on the WisdomTree website (https://www.wisdomtree.eu/en-gb/products).
Additional information on other financial and operational risks and uncertainties faced by the Company,
including further details surrounding the value of Currency-Hedged Metal Securities and the Metal Bullion and
Metal Adjustment Contracts are disclosed in note 13 of these financial statements.
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Principal Risks and Uncertainties (continued)
Movements in the value of the underlying Metal Bullion and Metal Adjustment Contracts, and thus the value of
the Currency-Hedged Metal Securities, may vary widely which could have an impact on the demand for the
Currency-Hedged Metal Securities issued by the Company. The movement in the prices of the Metal Bullion
are:
2022 Review
Gold is seen as the foremost precious metal, having been used as a currency and a method for storing wealth
in the past and this is because there are large above-ground stocks which can be quickly mobilised – this
liquidity often resulting in gold acting more like a currency than a commodity. Although inflation was supportive
of gold last year, the aggression with which central banks acted to tighten monetary policy strengthened the US
dollar and lifted Treasury yields creating headwinds for precious metals.
Future Outlook
2023 looks set to continue the recent challenge of meaningfully predicting prices and volatility for precious
metals, largely because of the continuing Ukraine Crisis, with the impact of ongoing financial sanctions, in
addition to potential future supply issues. Furthermore, whilst the risk of escalating conflict has also set many
investors returning to gold as a safe haven, if in 2023, China’s lockdowns are lifted for good, and the economic
engine starts firing again, fuelled by accommodative monetary policy, this could be the catalyst for wider market
recovery.
Corporate Governance
There is no standard code of corporate governance in Jersey. The operations, as previously described in the
Directors’ Report, are such that the directors have determined that the Company is not required to apply, and
has elected not to voluntarily apply, the UK Corporate Governance Code.
As the Board is small, there is no nomination committee and appointments of new directors are considered by
the Board as a whole. The Board does not consider it appropriate that directors should be appointed for a
specific term. Furthermore, the structure of the Board is such that it is considered unnecessary to identify a
senior non-executive director.
The constitution of the Board is disclosed on page 1. The Board meets regularly as required by the operations
of the Company, but at least quarterly to review the overall business of the Company and to consider matters
specifically reserved for its review.
Internal Control
During the year the Company did not have any employees or subsidiaries, and there is no intention that this will
change. The Company, being a special purpose company established for the purpose of issuing Currency-
Hedged Metal Securities, has not undertaken any business, save for issuing and redeeming Currency-Hedged
Metal Securities, entering into the required documents and performing the obligations and exercising its rights
in relation thereto, since its incorporation. The Company does not intend to undertake any business other than
issuing and redeeming Currency-Hedged Metal Securities and performing the obligations and exercising its
rights in relation thereto.
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Internal Control (continued)
The Company is dependent upon ManJer to provide management and administration services to it. ManJer is
licensed under the Financial Services (Jersey) Law 1998 to conduct classes U and Z of Fund Services
Business. ManJer outsources the administration services in respect of the Company to the Administrator.
Documented contractual arrangements are in place with the Administrator which define the areas where the
authority is delegated to them. The performance of the Manager and Administrator are reviewed on an ongoing
basis by the Board through their review of periodic reports. ManJer provides management and other services
to both the Company and other companies issuing commodity and index tracking securities.
The Board having reviewed the effectiveness of the internal control systems of the Manager and the
Administrator, does not consider that there is a need for the Company to establish its own internal audit
function.
Audit Committee
The Board has not established a separate audit committee; instead the Board meets to consider the financial
reporting by the Company, the internal controls, and relations with the external auditor. In addition, the Board
reviews the independence and objectivity of the auditor.
Christopher Foulds
Director
Jersey
19 April 2023
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The directors are responsible for preparing the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they
have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern; and
use the going concern basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law
1991. They are responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
With regard to Directive 2004/109/EC, amended by Directive 2013/50/EU (collectively the Transparency
Directive), the Central Bank (Investment Market Conduct) Rules of the Central Bank of Ireland and the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the directors confirm that to
the best of their knowledge that:
the financial statements for the year ended 31 December 2022 give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company as required by law and in accordance with
IFRS as issued by the IASB; and
the Directors’ Report gives a fair view of the development and performance of the Company’s
business, including financial position and the important events that have occurred during the year, and
their impact on these financial statements, together with a description of the principal risks and
uncertainties they face.
By order of the Board
Christopher Foulds
Director
Jersey
19 April 2023
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
Opinion
We have audited the financial statements of WisdomTree Hedged Metal Securities Limited (the
“company”) for the year ended 31 December 2022 which comprise the Statement of Profit or Loss
and Other Comprehensive Income, the Statement of Financial Position, the Statement of Cash Flows,
the Statement of Changes in Equity and the related notes 1 to 16, including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”).
In our opinion, the financial statements:
►
give a true and fair view of the state of the company’s affairs as at 31 December 2022 and of its
loss for the year then ended;
►
have been properly prepared in accordance with IFRS; and
►
have been properly prepared in accordance with the requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
company in accordance with the ethical requirements that are relevant to our audit of the financial
statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the
directors’ assessment of the company’s ability to continue to adopt the going concern basis of
accounting included:
►
We obtained an understanding of management’s rationale for using the going concern basis
of accounting and confirmed our understanding of management’s Going Concern assessment
process including the process they adopted to capture all key factors in their assessment;
►
We obtained management’s board approved going concern assessment covering the period
of assessment from the date of signing to 30 April 2024. Management’s assessment has
focussed on a combination of;
o
Assessing the ongoing viability of the company through continued involvement of
its Custodian, FX Counterparty and Authorised Participants;
o
Assessing the ongoing ability of WisdomTree Management Jersey Limited (“ManJer”) to
continue to meet its obligations as manager and pay all expenses of the company. This
includes consideration of the assets under management of all managed issuer entities
(“Issuer Platform”) which includes this company. In assessing this ability we considered
the fixed and variable operating costs that could be supported under varying levels of
total assets under management for the Issuer Platform.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
►
Using our understanding of the business, we evaluated whether the considerations
and method adopted by management in assessing going concern was appropriate.
►
We performed reverse stress testing on the forecasts to understand how severe the
downside scenarios would have to be, and in particular the reduction in platform assets under
management, to result in the platform generating insufficient management fees to cover
operating costs. We observed significant headroom in management fee income, at current
Assets Under Management (“AUM”) levels, in excess of fixed costs which supports
management’s assumption that the Issuer Platform is able to absorb heightened levels of
volatility in AUM.
►
We considered whether management’s disclosures, in the Annual Report and financial
statements, sufficiently and appropriately discloses information required in respect of the
going concern assumption applied through consideration of relevant disclosure standards.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the company’s
ability to continue as a going concern over the period to 30 April 2024.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the company’s ability to continue as a going
concern.
Overview of our audit approach
►
Materiality
►
Overall materiality of US$15.2m being 1% of preliminary total assets
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for the company. This enables us to form an opinion on the financial
statements.
We take into account size, risk profile, the organisation of the company and effectiveness of controls,
changes in the business environment and the potential impact of climate change when assessing the
level of work to be performed. All audit work was performed directly by the audit engagement team.
Changes from the prior year There were no scoping changes compared to the prior year.
Climate change
There has been increasing interest from stakeholders as to how climate change will impact
companies. The company has determined that there are no directly observed impacts of climate
change on the business due to the nature of the company and its operations. This is explained on
pages 5 to 6 in the corporate social responsibility section, which form part of the “Other information,”
rather than the audited financial statements.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Our procedures on these disclosures therefore consisted solely of considering whether they are
materially inconsistent with the financial statements or our knowledge obtained in the course of
the audit or otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused on evaluating management’s assessment
of the impact of climate risk, physical and transition, the adequacy of the company’s disclosures in
the financial statements as set out in note 2 and conclusion that there was no further impact of
climate change to be taken into account as the material assets and liabilities are valued based on
market pricing as required by IFRS.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Valuation of Financial
Our response to the risk
There were no matters identified
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect
of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the company to be US$15.2 million (2021: US$3.8 million), which is 1%
of total assets (2021: 1% of Total Assets). We believe that Total Assets provides us with an
appropriate basis for audit materiality as Total Assets reflects the relevant exposure of holders
of issued securities to the underlying asset base.
There has been no change in the basis of materiality used compared to the prior year.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the company’s overall control
environment, our judgement was that performance materiality was 50% (2021: 75%) of our materiality,
namely US$7.6m (2021: US$13.2m). We have set performance materiality at this percentage in response
to the value of errors identified and corrected in the financial statement close process.
We had set performance materiality at 75% of our planning materiality in the prior year based on
our prior experience of not identifying errors or significant audit differences.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Board that we would report to them all uncorrected audit differences in excess
of US$760k (2021: US$885k), which is set at 5% of materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to
10, other than the financial statements and our auditor’s report thereon. The directors are responsible
for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the
Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
►
proper accounting records have not been kept by the company, or proper returns adequate for our
audit have not been received from branches not visited by us; or
►
the financial statements are not in agreement with the company’s accounting records and
returns; or
►
we have not received all the information and explanations we require for our audit
Responsibilities of directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 9, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud.
The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
►
We obtained an understanding of the legal and regulatory frameworks that are applicable to the
company and determined that the most significant are those that relate to the reporting
framework, comprising IFRS and the Companies (Jersey) Law 1991. In addition, we concluded
that there are certain significant laws and regulations that may have an effect on the presentation
and disclosure of the financial statements being the applicable Listing Rules of the Central Bank
of Ireland (Investment Market Conduct) and UK Listing Authority Rules;
►
We understood how WisdomTree Hedged Metal Securities Limited is complying with those
frameworks by making enquiries of the directors and key management of the administrative
service provider. We corroborated our enquiries through our review of minutes of Board
meetings, papers provided to the board and correspondence received from regulatory bodies
and noted no contradictory evidence;
►
We assessed the susceptibility of the company’s financial statements to material
misstatement, including how fraud might occur by understanding the investment objectives
of the Company and discussing with management to understand where reporting was
considered susceptible to fraud. Where this risk was considered to be higher, we performed
audit procedures in response to the identified fraud risk.
These procedures included testing of transactions to supporting documentation, testing of
specific accounting journal entries and focussed testing, including that referred to in the
key audit matters section above. These procedures were designed to provide reasonable
assurance that the financial statements were free from fraud or error;
►
Based on this understanding we designed our audit procedures to identify non-compliance
with such laws and regulations. Our procedures involved reading board minutes to identify any
non-compliance with laws and regulations, a review of any associated reporting submitted to
the board on compliance with laws and regulations and enquiries of members of management
of the appointed administrative service provider;
►
As the company operates in the asset management industry the Audit Partner assessed
the experience of the engagement team and concluded that the team had the appropriate
competence and capabilities.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE HEDGED METAL SECURITIES LIMITED
(continued)
Other matters we are required to address
►
Following the recommendation from those charged with governance, we were appointed by the
company on 3 December 2019 to audit the financial statements for the year ending 31 December
2019 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 4
years, covering the years ending 31 December 2019 to 31 December 2022.
►
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
company and we remain independent of the company in conducting the audit.
►
The audit opinion is consistent with the additional report to those charged with governance.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Christopher David Gordon Barry, FCA
for and on behalf of Ernst & Young LLP
Jersey, Channel Islands
Date: 19 April 2023
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The directors consider the Company’s activities as continuing.
1 A non-statutory and non-GAAP Statement of Profit or Loss and Total Comprehensive Income reflecting adjustments
representing the movement in the difference between the value of the Metal Bullion and the price of Currency-Hedged Metal
Securities is set out in note 16.
2 There are no items of Other Comprehensive Income, therefore the Loss for the Year also represented the Total
Comprehensive Income for the Year.
The notes on pages 23 to 42 form part of these financial statements
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The assets and liabilities in the above Statement of Financial Position are presented in order of liquidity from
most to least liquid.
The financial statements on pages 19 to 42 were approved and authorised for issue by the board of directors and
signed on its behalf on 19 April 2023.
Christopher Foulds
Director
The notes on pages 23 to 42 form part of these financial statements
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Currency-Hedged Metal Securities are issued through a direct transfer of Metal Bullion from the Authorised
Participants to the Custodian or redeemed by the direct transfer of Metal Bullion by the Custodian to the
Authorised Participants. Metal Adjustment Contracts are converted into Metal Bullion by the direct transfer of
Metal Bullion between the Custodian and the FX Counterparty. As such the Company is not a party to any cash
transactions. The creations and redemptions of Currency-Hedged Metal Securities and additions and disposals
of Metal Bullion, which are non-cash transactions for the Company, are disclosed in notes 7 and 8 respectively in
the reconciliation of opening to closing Currency-Hedged Metal Securities and Metal Bullion and Metal
Adjustment Contracts.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer” or
the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company (including marketing), as well as the payment of costs relating
to the listing and issue of Currency-Hedged Metal Securities. In return for these services, the Company
has an obligation to remunerate ManJer with an amount equal to the aggregate of the management fee and the
creation and redemption fees earned (the “ManJer Fee”). The Metal Bullion in respect of the ManJer Fee and
Hedging Fee is transferred by the Trustee from the Company’s custodian accounts to ManJer’s custodian
accounts (and ManJer transfers the Metal Bullion in respect Hedging Fee to the FX Counterparty). In addition,
amounts in respect of the creation and redemption fees are transferred directly from the Authorised Participants
to ManJer and there are no cash flows through the Company.
The notes on pages 23 to 42 form part of these financial statements
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3 A non-statutory and non-GAAP Statement of Changes in Equity reflecting adjustments representing the difference between the value of Metal Bullion and the price of Currency-Hedged
Metal Securities is set out in note 16.
The notes on pages 23 to 42 form part of these financial statements
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1.
General Information
WisdomTree Hedged Metal Securities Limited (the “Company”) is a company incorporated and domiciled in
Jersey. The address of the registered office is Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW.
The Company’s principal activity is the issue and listing of currency-hedged metal securities (“Currency-Hedged
Metal Securities”). Currency-Hedged Metal Securities allow investors to gain a currency hedged exposure to the
precious metals market without needing to take physical delivery of the physical metal or enter into currency
hedge transactions. It also allows investors to buy and sell that interest through the trading of a security on the
London Stock Exchange and any other exchange to which that security may be admitted to trading from time to
time. Each Currency-Hedged Metal Security is denominated in a specified currency and is backed by physical
metal (“Metal Bullion”) which is held in custody by designated custodians, supported by one or more Metal
Adjustment Agreements (and “Metal Adjustment Contracts” entered into pursuant thereto) with one or more FX
Counterparties (currently the only FX Counterparty is Morgan Stanley & Co. International plc (“Morgan
Stanley”)) which provide a currency hedging overlay.
The Currency-Hedged Metal Securities are secured on an amount of Metal Bullion and Metal Adjustment
Contracts equivalent to the entitlement in respect of each Currency-Hedged Metal Security (referred to as the
“Metal Entitlement”) which is calculated in accordance with an agreed formula published in the Prospectus. The
Company holds Metal Bullion and enters into Metal Adjustment Contracts to support the Currency-Hedged Metal
Securities as determined by the Metal Entitlement. The Company does not make gains from trading in the
underlying Metal Bullion and Metal Adjustment Contracts. As a result (and with the exception of the impact of
applicable fees), from a commercial perspective gains and losses in respect of Metal Bullion and Metal
Adjustment Contracts will always be offset by a corresponding loss or gain on the Currency-Hedged Metal
Securities and therefore commercially the Company does not retain any net gains or losses or net risk
exposures. However, the difference in valuation between Metal Bullion and Metal Adjustment Contracts and
Currency-Hedged Metal Securities creates a mis-match between values reported within these financial
statements. This difference in valuation would be reversed on a subsequent redemption of the Currency-
Hedged Metal Securities and transfer of the corresponding Metal Bullion. Further details are disclosed within the
Accounting Policies and in note 16, with additional information regarding the risks of the Company disclosed in
note 13. Furthermore, the Company presents an adjusted Statement of Profit or Loss and Other
Comprehensive Income and an adjusted Statement of Changes in Equity in note 16 of the financial statements
to reflect the economic results of the Company through the reversal of the difference in valuation between Metal
Bullion and Metal Adjustment Contracts and Currency-Hedged Metal Securities given the gain or loss would be
reversed on a subsequent redemption of the Currency-Hedged Metal Securities and transfer of the
corresponding Metal Bullion, and therefore will not be realised.
Exchange traded products are not typically actively managed, are significantly lower in cost when compared to
actively managed mutual funds and are easily accessible to investors. No active trading or management of
Metal Bullion and Metal Adjustment Contracts is required because the Company only receives or delivers Metal
Bullion on the issue and redemption of Currency-Hedged Metal Securities, and only holds Metal Bullion and
enters into Metal Adjustment Contracts to support the Currency-Hedged Metal Securities.
The Company is entitled to:
(1)
a management fee and a hedging fee calculated by reducing the Metal Entitlement of each class of
Currency-Hedged Metal Security on a daily basis by an agreed amount (the “Management Fee” and the
“Hedging Fee”); and
(2)
creation and redemption fees on the issue and redemption of the Currency-Hedged Metal Securities.
No creation or redemption fees are payable to the Company when investors trade in the Currency-Hedged Metal
Securities on a listed market such as the London Stock Exchange. Creation and redemption fees may also be
waived with certain approved persons where applicable.
The Hedging Fee income is matched by an equivalent expense payable to the FX Counterparty. In addition, the
Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer” or the
“Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company (including marketing), as well as the payment of costs relating
to the listing and issuance of Currency-Hedged Metal Securities. In return for these services, the Company pays
ManJer an amount equal to the Management Fee and the creation and redemption fees earned (the “ManJer
Fee”). As a result, the Company recognises a result before fair value movements of nil for each period.
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2.
Accounting Policies
The main accounting policies of the Company are described below.
Basis of Preparation
The Board has concluded specifically that climate change, including physical and transition risks, does not have
a material impact on the recognition and separate measurement considerations of the assets and liabilities in
these financial statements as at 31 December 2022.
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as issued by the International Accounting Standards Board (“IASB”), and interpretations issued by the
International Financial Reporting Interpretations Committee of the IASB. The financial statements have been
prepared under the historical cost convention, as modified by the revaluation of physical metal bullion, financial
assets and financial liabilities held at fair value through profit or loss. This conclusion is based on the fact that
assets are reported at fair value under IFRS, and as set out in note 13 are categorised as level 2 due to the use of
observable, verifiable inputs and third party information sources. The liabilities are valued utilising listed market
prices at the period end. These observable inputs and market prices will reflect wider market sentiment, which
inherently includes market perspectives relating to the impact of climate change.
Critical Accounting Estimates and Judgements
The presentation of financial statements in conformity with IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s
accounting policies.
Significant Judgements
The key accounting judgements required to prepare these financial statements are:
1.
In respect of the presentation of non-statutory and non-GAAP adjustments to the Statement of Profit or
Loss and Other Comprehensive Income and the Statement of Changes in Equity, as disclosed in note 16.
2.
The determination of the appropriate accounting policy to be applied to Metal Bullion.
Under IFRS there is no standard treatment for the classification of physical metals (as they do not meet the
definition of a financial asset, cash, inventory or property, plant or equipment) therefore the election of how
to treat physical metals is left to some interpretation for companies which hold these assets. The Metal
Bullion is held to provide the security holders with the exposure to changes in the fair value of Metal Bullion
and therefore the Directors consider that carrying the Metal Bullion at fair value through profit or loss,
consistent with the treatment that would be applicable to a financial instrument, reflects the objectives and
the purpose of holding the asset.
Significant Estimates
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities.
Estimates are continually evaluated and based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. The directors do not consider that
any significant estimates have been applied in the preparation of these financial statements.
Going Concern
The nature of the Company’s business dictates that the outstanding Currency-Hedged Metal Securities may be
redeemed at any time by Authorised Participants and in certain circumstances by individual holders and also, in
certain circumstances, may be compulsorily redeemed by the Company. As the redemption of Currency-
Hedged Metal Securities will always coincide with the transfer of an equal amount of Metal Bullion, liquidity risk is
mitigated such that there is no material residual risk. All other expenses of the Company are met by ManJer.
The directors closely monitor the financial position and performance of ManJer, its assets under management,
and therefore its related revenue streams, in respect of fulfilling the obligations under the services agreement.
The net reported position on balance sheet, including in instances where a deficit is reported, is not considered
to impact the going concern position of the Company as this position results solely due to the unrealised gains or
losses on Metal Bullion and Currency-Hedged Metal Securities due to the accounting measurement basis
applied in accordance with IFRS.
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2.
Accounting Policies (continued)
Going Concern (continued)
As Metal Bullion are held to support Currency-Hedged Metal Securities, any deficit or surplus reported on
unrealised positions would be reversed on a subsequent redemption of the Currency-Hedged Metal Securities
and the related cancellation of Metal Bullion. A reported deficit is not considered indicative of any issues relating
to solvency of the Company and the directors are satisfied that any obligations arising in respect of the Currency-
Hedged Metal Securities can be managed in accordance with the terms of the applicable Prospectus. The
directors consider the operations of the Company to be ongoing, with a reasonable expectation that the
Company has adequate resources to continue in operational existence until 30 April 2024, and accordingly these
financial statements have been prepared on the going concern basis.
Accounting Standards
(a)
Standards, amendments and interpretations considered by the Company:
The following standards that have been revised, issued and became effective but are not considered
applicable to the Company:
Amendments to IFRS 3 Business Combinations
Amendments to IFRS 4 Insurance Contracts
Amendments to IFRS 16 Leases
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Annual Improvements to IFRS
There were no other new standards, amendments and interpretations adopted in the current year that
resulted in a significant effect on these financial statements.
(b)
New and revised IFRSs in issue but not yet effective:
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective for
annual periods beginning on or after 1 January 2023)
Amendments to IAS 12 Deferred Tax (effective for annual periods beginning on or after 1 January
2023)
Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on
or after 1 January 2024)
Amendments to IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2024)
The directors do not expect the adoption of the above standards, amendments and interpretations that are
in issue but not yet effective will have a material impact on the financial statements of the Company in future
periods.
Currency-Hedged Metal Securities
i)
Issue and Redemption
Each time a Currency-Hedged Metal Security is issued or redeemed by the Company a corresponding
amount of Metal Bullion is transferred into or from the relevant secured account held by the Custodian. Upon
initial recognition, the fair value is recorded using the fixing price published by the London Bullion Market
Association (“LBMA”) applied to the underlying Metal Bullion transferred.
Financial assets and liabilities are recognised and de-recognised on the transaction (trade) date.
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2.
Accounting Policies (continued)
Currency-Hedged Metal Securities (continued)
ii)
Classification at fair value through Profit or Loss
Currency-Hedged Metal Securities comprise a financial instrument whose redemption price is linked to the
underlying Metal Bullion and Metal Adjustment Contracts. The Currency-Hedged Metal Securities are
classified as financial liabilities measured at fair value through profit or loss under IFRS 9 due to an
embedded derivative. This also significantly reduces a measurement or recognition inconsistency that
would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on
different bases.
iii)
Pricing
A price is established in respect of each class of Currency-Hedged Metal Security for each type and
currency of bullion as at the end of each Pricing Day by reference to the spot rate for Metal Bullion as
published by the LBMA and the MSPM indices published by Morgan Stanley & Co. LLC (“Morgan Stanley”)
(collectively referred to within these financial statements as the ‘Contractual Value’).
The reference price used to convert the value of the currency hedge into a quantity of Metal Bullion is the
spot rate for Metal Bullion as published by the LBMA.
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider that the stock exchanges where the Metal Securities are listed to be
the principal market and as a result the fair value of the Metal Securities is the on-exchange price as quoted
on the stock exchange demonstrating active trading with the highest trading volume on each day that the
price is obtained. The Metal Securities are priced using the latest traded mid-market price on (or before) the
Statement of Financial Position date.
A difference arises between the value of Metal Bullion and Metal Adjustment Contracts (held to support the
Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities (at market value) presented in
the Statement of Financial Position. This difference is reversed on a subsequent redemption of the
Currency-Hedged Metal Securities and the transfer of the corresponding Metal Bullion.
Metal Bullion and Metal Adjustment Contracts
The Company holds Metal Bullion and Metal Adjustment Contracts equal to the amount due to holders of
Currency-Hedged Metal Securities solely for the purposes of meeting its obligations under the Currency-Hedged
Metal Securities.
As described above, under IFRS there is no standard treatment for the classification of physical metals. The
Metal Bullion and Metal Adjustment Contracts are held to provide the security holders with the exposure to
changes in the fair value of Metal Bullion and Metal Adjustment Contracts and therefore the Directors consider
that carrying the Metal Bullion and Metal Adjustment Contracts at fair value through profit or loss, consistent with
the treatment that would be applicable to a financial instrument, reflects the objectives and the purpose of
holding the asset.
Metal Bullion is priced on a daily basis based on the amount of Metal Bullion held using the latest fixing price
published by the LBMA, and is considered to be the fair value of the Metal Bullion. Also on a daily basis an
amount is transferred to Metal Bullion held in respect of the Management Fee and the Hedging Fee of each class
of security.
Metal Adjustment Contracts comprise a financial instrument whose value is linked to the underlying Metal
Bullion, classified as financial assets or financial liabilities at fair value through profit or loss.
The reference price used to convert the value of the currency hedge into a quantity of Metal Bullion is the spot
rate for Metal Bullion, as published by LBMA. The amount receivable or payable at the Statement of Financial
Position date is valued using the latest price published by the LBMA.
This valuation of the Metal Bullion and Metal Adjustment Contracts is equivalent to the calculated exposure
represented by the Metal Entitlement of each class of Currency-Hedged Metal Security and is referred to as the
‘Contractual Value’.
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2.
Accounting Policies (continued)
Metal Bullion and Currency-Hedged Metal Securities Awaiting Settlement
The issue and redemption of Currency-Hedged Metal Securities, and the transfer of Metal Bullion is accounted
for on the transaction date. The transaction will not settle until two days after the transaction date. Where
transactions are awaiting settlement at the year end, the value of the Metal Bullion and the Currency-Hedged
Metal Securities due to be settled is separately disclosed within the relevant assets and liabilities on the
Statement of Financial Position. The fair value of these receivables and payables is considered equivalent to
their carrying value.
Metal Bullion Held in Respect of Fees and Fees Payable in Metal Bullion
Management Fees and Hedging Fees are accrued by reducing the Metal Entitlement of each class of Currency-
Hedged Metal Security on a daily basis by an agreed amount. These fees are recognised in Metal Bullion,
recorded at fair value through profit or loss in accordance with the accounting judgement set out above in respect
of Metal Bullion. The amount recognised at the Statement of Financial Position date is revalued using the latest
price published by the LBMA.
Management Fees and FX Counterparty Fees payable are also accrued based on the income accrued in
accordance with the agreement with ManJer and the FX Counterparty. These fees are payable in Metal Bullion,
recorded at fair value through profit or loss to significantly reduce a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities, or recognising the gains and losses on them, on
different bases. The payable at the Statement of Financial Position date is revalued using the latest price
published by the LBMA.
Overdraft Facility
The Company has entered into an overdraft agreement with the custodian in respect of each class of Currency-
Hedged Metal Securities which each allow for the loan of up to one bullion bar of gold (collectively the “Overdraft
Facility”). The Overdraft Facility is denominated in ounces of Metal Bullion, repayable in ounces of Metal Bullion
equivalent to the Metal Bullion on Loan. The Overdraft Facility is recorded at the fair value of the ounces of Metal
Bullion using the latest price published by the LBMA and changes in fair value are recognised through profit or
loss.
Metal Bullion on Loan
The gold held under the Overdraft Facility (the “Metal Bullion on Loan”) is used by the Company to ensure all
WisdomTree Physical Gold - GBP Daily Hedged Securities and WisdomTree Physical Gold - EUR Daily Hedged
Securities are supported by the physical holdings of gold in allocated form. The Metal Bullion on Loan is
recorded at fair value using the latest price published by the LBMA. Changes in fair value are recognised
through profit or loss.
Other Financial Assets and Liabilities
Other financial assets and liabilities are non-derivative financial assets and liabilities including trade and other
receivables and trade and other payables (primarily Creation and Redemption Fees) with a fixed payment
amount and are not quoted in an active market. After initial measurement the other financial assets and liabilities
are subsequently measured at amortised cost using the effective interest method less any allowance for
expected credit losses (in respect of financial assets only). The effective interest method is a method of
calculating the amortised cost of an instrument and of allocating interest over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash flows (including all fees paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the
expected life of the instrument, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition. Impairment losses, including reversals of impairment losses and impairment gains, are recorded
through profit or loss.
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2.
Accounting Policies (continued)
Reserves
A revaluation reserve and a retained earnings reserve are maintained within equity. All profit or loss is taken to
the retained earnings reserve at the end of the accounting period to which it relates and the gain or loss relating
to the mis-match of accounting values is transferred to the non-distributable revaluation reserve as the
gain or loss relating to the mis-match of accounting values is transferred to the non-distributable revaluation
reserve as the balance relates to unrealised gains and losses on Metal Bullion and Metal Adjustment Contracts
(held to support the Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities, which will be
reversed on a subsequent redemption of the Currency-Hedged Metal Securities and the related transfer of Metal
Bullion and will therefore not be realised.
Income
The Company derives its income over time (in respect of Management Fees and Hedging Fees), and at a point
in time (in respect of creation and redemption fees) as follows:
i)
Management Fees and Hedging Fees
Management Fees and Hedging Fees are calculated by applying a fixed percentage to reduce the Metal
Entitlement of each class of Currency-Hedged Metal Securities on a daily basis in accordance with the
terms of the securities issued, at the following rates:
(1) Hedging Fee was previously 0.45% p.a. and was reduced effective from 23 September 2022.
(2) Hedging Fee was previously 0.35% p.a. and was reduced effective from 23 September 2022.
The change in Metal Entitlement of each class of Currency-Hedged Metal Security reduces the value of the
Currency-Hedged Metal Securities. This reduction equates to the Management Fee and Hedging Fee
amount in Metal Bullion, that is recognised for that day per each Currency-Hedged Metal Security in issue
on that day. The Management Fees and Hedging Fees are accrued and recognised on a daily basis until
invoiced and settled by transfer of the Metal Bullion. The amount recognised as income is calculated by
applying the average LBMA Price to the total Management Fee and Hedging Fee accrued on a monthly
basis.
ii)
Creation and Redemption Fees
Fees for the issue and redemption of Currency-Hedged Metal Securities are recognised at the fair value of
the consideration expected to be received, on the date on which the transaction becomes legally binding.
Accrued creation and redemption fees are invoiced and settled on a quarterly basis.
Foreign Currency
The financial statements of the Company are presented in the currency in which the prices of the Metal Bullion
are determined together with the denomination of the Metal Adjustment Contracts entered into to support the
Currency-Hedged Metal Securities issued by the Company (its functional currency). For the purpose of the
financial statements, the results and financial position of the Company are expressed in United States Dollars,
which is the functional currency of the Company, and the presentational currency of the financial statements.
Transactions in foreign currencies are initially recorded at the spot rate at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the year-end date are translated at rates ruling at that
date. Creation and redemption fees are translated at the average rate for the month in which they are incurred.
The resulting differences are accounted for through profit or loss.
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2.
Accounting Policies (continued)
Segmental Reporting
A segment is a distinguishable component of the Company that is engaged either in providing products or
services (business segment), or in providing products and services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments.
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Company that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate
resources to the segments and to assess their performance. The CODM has been determined as the board of
directors.
Whilst the Company has a number of different classes of Currency-Hedged Metal Securities in issue, the
financial information reviewed by the CODM is aggregated and not segregated by those different classes of
Currency-Hedged Metal Securities and therefore the CODM concluded that these components do not meet the
criteria of operating segments. Furthermore the marketing of the Currency-Hedged Metal Securities is
undertaken on a centralised basis and the terms of the Currency-Hedged Metal Securities of any class rank pari
passu in all respects irrespective of stock exchange listing.
As a result, the CODM determined that the Company is operating a single segment or product group, precious
metals, and one geographical segment which is Europe. Therefore the Company discloses its results on an
equivalent aggregated form and does not provide and further segmental information. In addition, the Company
has no single major customer from which greater than 10% of income is generated. All information relevant to
the understanding of the Company’s activities is included in these financial statements.
3.
Result Before Fair Value Movements
Result Before Fair Value Movements for the year comprised:
Audit Fees for the year of GBP 26,009 will be met by ManJer (2021: GBP 21,300).
4.
Taxation
The Company is subject to Jersey Income Tax. During the year the Jersey Income Tax rate applicable to the
Company is zero percent (2021: zero percent).
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5.
Metal Bullion Held in Respect of Fees
Management Fees and Hedging Fees are recognised in Metal Bullion and are recorded at fair value.
6.
Trade and Other Receivables
The fair value of the receivables is equal to the carrying value. The Trade and Other Receivables are due to be
recovered within 12 months of the year end.
7.
Metal Bullion Exposure
The Company holds Metal Bullion and Metal Adjustment Contracts to support the Currency-Hedged Metal
Securities as determined by the Metal Entitlement (which is calculated in accordance with an agreed formula
published in the Prospectus). In accordance with the Metal Adjustment Agreements, the Metal Adjustment
Contracts can be converted into Metal Bullion. As a result, the Metal Bullion together with the Metal Adjustment
Contracts provides the aggregate Metal Bullion Exposure required by the Metal Entitlement of each class of
Currency-Hedged Metal Security.
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7.
Metal Bullion Exposure
As at the year end, there can be certain amounts of Metal Bullion awaiting settlement in respect of the
creation or redemption of Currency-Hedged Metal Securities with transaction dates before the year end and
settlement dates in the following year:
The amount receivable on Metal Bullion awaiting settlement is USD 2,086,539 (2021: USD nil).
The amount payable on Metal Bullion awaiting settlement is USD 479,757 (2021: USD nil).
All Metal Bullion assets have been valued using the AM fix on 31 December 2022 as published by the LBMA
being the last fix prices available for the year.
The below reconciliation of changes in the Metal Bullion includes only non-cash changes.
8.
Currency-Hedged Metal Securities
Whilst the Currency-Hedged Metal Securities are quoted on the open market, the Company’s ultimate liability
relates to its contractual obligations to issue and redeem Currency-Hedged Metal Securities in exchange for
Metal Bullion and Metal Adjustment Contracts as determined by the Metal Entitlement of each class of Currency-
Hedged Metal Security on each trading day. The fair value of each creation and redemption of Currency-Hedged
Metal Securities is recorded using the price published by the LBMA on the transaction date, and is the
“Contractual Value”. The issue and redemption of Currency-Hedged Metal Securities is recorded at a value that
corresponds to the value of the Metal Bullion transferred in respect of the issue and redemption.
As a result, the Company has no net exposure to gains or losses on the Currency-Hedged Metal Securities and
Metal Bullion and Metal Adjustment Contracts.
The Company measures the Currency-Hedged Metal Securities at their fair value in accordance with IFRS 13
rather than at the Contractual Value described above. The fair value is the price quoted on stock exchanges or
other markets where the Currency-Hedged Metal Securities are listed or traded. The fair values and changes
thereof during the year based on prices available on the open market as recognised in the financial statements
are:
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8.
Currency-Hedged Metal Securities (continued)
The contractual values and changes thereof during the year based on the contractual settlement values are:
The gain or loss on the difference between the value of the Metal Bullion and Metal Adjustment Contracts and
the fair value of Currency-Hedged Metal Securities would be reversed on a subsequent redemption of the
Currency-Hedged Metal Securities and transfer of the corresponding Metal Bullion. Refer to note 16 for the non-
statutory and non-GAAP adjustments which reflect the results of this reversal.
As at the year end, there can be certain amounts of Metal Bullion awaiting settlement in respect of the
creation or redemption of Currency-Hedged Metal Securities with transaction dates before the year end and
settlement dates in the following year:
The amount payable on Currency-Hedged Metal Securities awaiting settlement is USD 2,086,539
(2021: USD nil).
The amount receivable on Currency-Hedged Metal Securities awaiting settlement is USD 479,757
(2021: USD nil).
The below reconciliation of changes in the Currency-Hedged Metal Securities, being liabilities arising from
financing activities, includes only non-cash changes.
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9.
Overdraft Facility
The Overdraft Facility, pursuant to the overdraft agreements entered into with the custodian, allows for the loan
of up to one bullion bar of gold (per class of Currency-Hedged Metal Security). The gold held under the
Overdraft Facility (the “Metal Bullion on Loan”) is used by the Company to ensure all WisdomTree Physical Gold
- GBP Daily Hedged Securities and WisdomTree Physical Gold - EUR Daily Hedged Securities are supported by
holdings of gold in allocated form.
The Company had Metal Bullion drawn under the Overdraft Facilities as follows:
The Metal Bullion on Loan and the Overdraft Facilities are recorded at the fair value of the Metal Bullion.
10.
Trade and Other Payables
Management Fees and Hedging Fees are payable by transfer of Metal Bullion are recorded at fair value. The fair
value of the remaining payables is equal to the carrying value. The ManJer Fee and FX Counterparty Fee
payable are due to be settled within 12 months of the year end.
11.
Stated Capital
The Company can issue an unlimited capital of nil par value shares in accordance with its Memorandum of
Association.
All Shares issued by the Company carry one vote per Share without restriction and carry the right to dividends.
All Shares are held by WisdomTree Holdings Jersey Limited (“HoldCo”).
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12.
Related Party Disclosures
Entities and individuals which have significant influence over the Company, either through ownership or by virtue
of being a director of the Company are considered to be related parties. In addition, entities with common
ownership to the Company and entities with common directors are also considered to be related parties.
Fees charged by ManJer during the year:
The following balances were due to ManJer at year end:
At 31 December 2022, USD 3 is receivable from ManJer (2021: USD 3).
As disclosed in the Directors’ Report, ManJer paid fees to R&H Fund Services (Jersey) Limited (“R&H” or the
“Administrator”) for administration services, which includes the provision of Directors, however following the
restructuring of the fee agreement effective from 1 July 2022, fees for those services are no longer separately
identified following the restructuring of the fee agreement effective from 1 July 2022.
During the year, R&H charged ManJer administration fees which include the Company and other entities for
which ManJer is the Manager and R&H is the Administrator, in aggregate, of GBP 633,027 of which GBP
295,796 was outstanding at the year end. (The administration agreement was updated, effective 1July 2022 and
the charges directly attributable to the Company are no longer specified. During the year ended 31 December
2021 the charges directly attributable to the Company amounted to GBP 40,136 with GBP 10,034 outstanding).
Peter Ziemba and Stuart Bell are executive officers of WisdomTree, Inc.
13.
Financial Risk Management
The Company is exposed to a number of risks arising from its activities including settlement risk, credit risk,
liquidity risk and market risk. The Board is responsible for the overall risk management approach and for
approving the risk management strategies and principles. The Board meets frequently to consider the risk
exposures of the Company and to determine appropriate management policies. The risk management policies
employed by the Company to manage these are discussed below.
The Currency-Hedged Metal Securities are subject to normal market fluctuations and other risks inherent in
investing in securities and other financial instruments. There can be no assurance that any appreciation in the
value of securities will occur, and the capital value of an investor’s original investment is not guaranteed. The
value of investments may go down as well as up, and an investor may not get back the original amount invested.
The information provided below is not intended to be a comprehensive summary of all the risks associated with
the Currency-Hedged Metal Securities and investors should refer to the most recent Prospectus for a detailed
summary of the risks inherent in investing in the Currency-Hedged Metal Securities. Any data provided should
not be used or interpreted as a basis for future forecast or investment performance.
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13.
Financial Risk Management (continued)
(a)
Settlement Risk
Settlement risk primarily refers to the risk that an Authorised Participant, the Custodian or the FX Counterparty
will default on its contractual obligations resulting in financial loss.
The directors believe that settlement risk would only be caused by the risk of the Company’s trading counterparty
not delivering Metal Bullion, entering into Metal Adjustment Contracts or delivering Currency-Hedged Metal
Securities on the settlement date. The Currency-Hedged Metal Securities settle through the CREST system.
The directors feel that this risk is mitigated as Currency-Hedged Metal Securities are not issued until the required
amount of Metal Bullion has been received in the Custodian account, and Metal Bullion is not transferred until the
relevant Currency-Hedged Metal Securities have been delivered in CREST. As a result each transaction does
not settle until all parties have fulfilled their contractual obligations.
Amounts outstanding in respect of positions yet to settle are disclosed in notes 7 and 8.
(b)
Credit Risk
Credit risk primarily refers to the risk that Authorised Participants, the Custodian or the FX Counterparty will
default on their contractual obligations resulting in financial loss. Each class of Currency-Hedged Metal Security
is issued under limited recourse arrangements whereby the holders have recourse only to the Metal Bullion and
Metal Adjustment Contracts (held to support the Currency-Hedged Metal Securities) and not to the Metal Bullion
and Metal Adjustment Contracts of any other class of Currency-Hedged Metal Security or to the Company,
therefore limiting the credit risk of the Company in connection with the issue of the Currency-Hedged Metal
Securities.
The total carrying amounts of the amounts receivable awaiting settlement and trade and other receivables best
represent the maximum credit risk exposure at the Statement of Financial Position date. At the reporting date
the Company’s amounts receivable awaiting settlement and trade and other receivables are detailed on the
Statement of Financial Position. Credit risk is managed by the Company by only dealing with Authorised
Participants who are believed to be creditworthy. In the event the Authorised Participants fail to complete their
obligation, no Currency-Hedged Metal Securities will be created therefore the Company does not have the risk of
loss of the amount expected to be received.
There is also a credit risk arising from the FX Counterparty to repay the FX component of the redemption price
and may be affected by the credit rating attached to the FX Counterparties (currently the only FX Counterparty is
Morgan Stanley). The Company manages its credit risk by only entering into Metal Adjustment Agreement
Contracts with FX Counterparties who are believed to be creditworthy. The carrying amounts of the Metal
Adjustment Contracts best represent the maximum credit risk exposure at the Statement of Financial Position
date and is presented in note 7. The Board monitors credit risk exposure including through an assessment of the
credit rating for Morgan Stanley to ensure the Company’s exposure is managed.
Credit risk also includes custodial risk. The custodian is not required to take out insurance and neither is the
Trustee. Accordingly, there is a risk that the secured Metal Bullion could be lost, stolen or damaged and the
Company would not be able to satisfy its obligations in respect of the Currency-Hedged Metal Securities.
Currently JP Morgan Chase Bank, NA is the only custodian.
Metal Bullion held with the custodians is held either in allocated or unallocated form.
Allocated: An allocated account evidences that uniquely identifiable bars of bullion have been
“allocated” to the customer and are segregated from other metal held in the custodian’s vault. An
allocated account is held in the customer’s name (which, for the Currency-Hedged Metal Securities,
means in the name of the Trustee as legal mortgagee pursuant to the Security and in its capacity as
trustee for the Security Holders). The customer has full title to the bullion held in the allocated account.
As a result, allocated Bullion does not entail any credit risk exposure to the custodian, and the credit
exposure to the custodians is therefore limited to the amounts held in unallocated accounts.
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13.
Financial Risk Management (continued)
(b)
Credit Risk (continued)
Unallocated: Unlike bullion held in an allocated account, bullion in an unallocated account does not
entitle the customer to a particular bar of bullion and the customer’s holding is not segregated from that
of other customers or the custodian. Instead, the books and records of the custodian record that the
customer is entitled to a specific amount of bullion. As the bullion is not segregated, the customer has a
credit risk exposure to the custodian. Bullion in unallocated form is easier to transfer as it simply requires
an update of the custodian’s books and records rather than movements of physical bullion and for this
reason transfers in connection with creation and redemption of Currency-Hedged Metal Securities are
carried out in unallocated form.
The Overdraft Facility is used by the Company to ensure all WisdomTree Physical Gold - GBP Daily Hedged
Securities and WisdomTree Physical Gold - EUR Daily Hedged Securities are supported by holdings of gold in
allocated form, and therefore the unallocated gold account relates to the Metal Bullion on Loan (see note 9).
The Board monitors credit risk exposure, including through an assessment of the credit rating of the custodian
(JPMorgan: AA (2021: AA) (Fitch, 19 September 2022), Morgan Stanley: A+ (2021: A+) (Fitch, 4 November
2022), to ensure the Company’s exposure is managed, and has continued to do so more closely with a focus on
any potential impact of, or developments relating to both the Ukraine Crisis and COVID-19.
(c)
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its
financial liabilities as they fall due. The Company’s receivables and payables are all payable on demand and
generally settled on a short-term basis. Liquidity risk in respect of receivables and payables related to income
and expenses is mitigated as Metal Bullion in respect of the Management Fee and the Hedging Fee are retained
by the Company on a daily basis, in order for the related ManJer expense accumulated (for the month, in
arrears) to be settled (in Metal Bullion) once invoiced, and amounts in respect of the creation and redemption
fees are transferred from the relevant counterparties directly to ManJer and there are no related cash flows
through the Company.
The Currency-Hedged Metal Securities do not have a contractual maturity date and will only be redeemed at the
request of the holder of the security, which may be requested at any time, with the transaction settling through
the transfer of the required Metal Bullion two days after the transaction date, or in the case of a compulsory
redemption by either transferring the required Metal Bullion, or by realising the Metal Bullion for cash and settling
the cash proceeds to holders on a short-term basis. Generally, Authorised Participants can submit applications
and redemptions directly with the Company.
When Currency-Hedged Metal Securities are redeemed, the Company transfers the corresponding amount of
Metal Bullion determined by the Metal Entitlement of those Currency-Hedged Metal Securities. The value of the
Metal Bullion returned will always be the same as that of the Currency-Hedged Metal Securities being
redeemed, therefore any redemption of Currency-Hedged Metal Securities would not impact the liquidity of the
Company. Furthermore, while the agreements with the FX Counterparties include limits (both daily and in the
aggregate), the Company is not obliged to issue and redeem Currency-Hedged Metal Securities in excess of
those limits under the terms of the Metal Adjustment Agreement. Consequently, the Company has not presented
any tabular information in respect of liquidity risk.
(d)
Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains sufficient
resources for operational purposes. The capital being managed is the Stated Capital as presented in the
Statement of Changes in Equity. Retained Earnings and the Revaluation Reserve, as presented in the
Statement of Changes in Equity, are not considered managed capital as these balances relate to unrealised
gains and losses on Metal Bullion and Metal Adjustment Contracts (held to support the Currency-Hedged Metal
Securities) and Currency-Hedged Metal Securities, which are reversed on a subsequent redemption of the
Currency-Hedged Metal Securities and the related transfer of Metal Bullion and will therefore not be realised.
The Company is not subject to any capital requirements imposed by a regulator and there were no changes in
the Company’s approach to capital management during the year.
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13.
Financial Risk Management (continued)
(d)
Capital Management (continued)
The Company’s principal activity is the issue and listing of Currency-Hedged Metal Securities. These Currency-
Hedged Metal Securities are issued and redeemed as demand requires. The Company holds a corresponding
amount of Metal Bullion and Metal Adjustment Contracts which matches the total contractual liability of the
Currency-Hedged Metal Securities issued.
ManJer supplies or arranges for the supply of all management and administration services to the Company and
pays all management and administration costs of the Company. In return for these services the Company pays
ManJer a fee, which under the terms of the service agreement is equal to the aggregate of the Management Fee
and creation and redemption fees earned.
As all Currency-Hedged Metal Securities in issue are supported by an equivalent amount of Metal Bullion and
Metal Adjustment Contracts held, and the running costs of the Company are paid by ManJer, the directors of the
Company consider the capital management and its current capital resources are adequate to maintain the
ongoing listing and issue of Currency-Hedged Metal Securities.
(e)
Sensitivity Analysis
IFRS 7 requires disclosure of a sensitivity analysis for each type of market risk to which the Company is exposed
to at the reporting date, showing how profit or loss and equity would have been affected by a reasonably possible
change to the relevant risk variable.
The Company’s rights and liabilities in respect of Metal Securities relate to its contractual obligations to issue and
redeem Currency-Hedged Metal Securities in exchange for Metal Bullion as determined by the Gold Entitlement
on each trading day. The fair value of each creation and redemption of Currency-Hedged Metal Securities is
recorded using the price published by the LBMA on the transaction date. However, under IFRS 13, the liability is
recorded at fair value (being the on-exchange price) which results in a mismatch. As described in note 16 this
mismatch is reversed on the redemption of Currency-Hedged Metal Securities.
As a result, the Company’s contractual and economic liability in connection with the issue and redemption of
Currency-Hedged Metal Securities is matched by movements in the corresponding Metal Bullion. Whilst
sensitivity analysis could be performed on this mismatch, the Company does not ultimately have economic to the
on-exchange price, but to the contractual liability of the Currency-Hedged Metal Securities and consequently,
the Company does not have any net exposure to market price risk. Furthermore the result of the numeric
sensitivity is considered not material by the directors and in their opinion, no sensitivity analysis is required to be
disclosed.
(f)
Market Risk
Market risk is the risk that changes in market prices (such as equity and bullion prices, interest rates and foreign
exchange rates) will affect the Company’s income or the value of its financial instruments held or issued.
i)
Price Risk
As described above, Currency-Hedged Metal Securities provide investors with exposure to precious metals.
Excluding the impact of Management Fees, the value each of the Metal Securities also dropped in line with
the changes in the underlying Metal Bullion values:
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13.
Financial Risk Management (continued)
(f)
Market Risk (continued)
i)
Price Risk (continued)
The value of the Company’s liability in respect of the Currency-Hedged Metal Securities fluctuates according
to the value of the Metal Bullion and Metal Adjustment Contracts. The risk of such change in price is
managed by the Company holding Metal Bullion and Metal Adjustment Contracts in the same quantity as its
liability. Whilst the Currency-Hedged Metal Securities are quoted on the open market, the Company’s
ultimate liability relates to its contractual obligations to issue and redeem Currency-Hedged Metal Securities
in exchange for Metal Bullion as determined by the Metal Entitlement on each trading day. The Company
measures the Currency-Hedged Metal Securities at their fair value in accordance with IFRS 13 rather than at
the Contractual Value (as described in the Prospectus). The gain or loss on the difference between the
value of the Metal Bullion and Metal Adjustment Contracts and the fair value of Currency-Hedged Metal
Securities would be reversed on a subsequent redemption of the Currency-Hedged Metal Securities and
transfer of the corresponding Metal Bullion. Refer to note 8 for the further details regarding fair values.
Therefore, the Company bears no residual financial risk from a change in the price of Metal Bullion and Metal
Adjustment Contracts. Furthermore, the impact of price sensitivity is considered immaterial to these
financial statements.
However, there is an inherent risk from the point of view of investors as the values of Metal Bullion and Metal
Adjustment Contracts and the value of the Currency-Hedged Metal Securities may vary widely due to,
amongst other things, changes in exchange rates, changing supply or demand for Metal Bullion,
government and monetary policy or intervention, interest rate levels and global or regional political,
economic or financial events.
The market price of Currency-Hedged Metal Securities is (and will remain) a function of supply and demand
amongst investors wishing to buy and sell Currency-Hedged Metal Securities and the bid-offer spread that
the market makers are willing to quote. This is highlighted further in note 16, and below under the Fair Value
Hierarchy.
Ukraine Invasion
On 24 February 2022, Russia engaged in military actions in the sovereign territory of Ukraine (the “Crisis”).
The Crisis has resulted in the implementation of sanctions and further actions by governments which, as well
as the Crisis itself, have impacted financial and commodities markets. In response to sanctions imposed on
Russia by the United Kingdom, United States and European Union, on 7 March 2022 the LBMA suspended
six Russian refiners (the “Russian Refiners”) from the Good Delivery List (the “Suspension”). As a result of
the Suspension, Metal Bullion bars produced after 7 March 2022 by the Russian Refiners will not be
considered Good Delivery unless and until the LBMA further amends its Good Delivery Rules. In line with
the LBMA’s Good Delivery Rules, Metal Bullion bars received from the Russian Refiners prior to 7 March
2022 still fall within the Good Delivery Rules and can be traded within the London Good Delivery system.
Prior to the Suspension, the Company received silver and gold from six Russian Refineries; in line with the
Good Delivery Rules, these bars meet the Good Delivery Rules and constitute Good Delivery.
The Company will only accept Metal Bullion bars which constitute Good Delivery and meet the Good
Delivery Rules set by the LBMA. Therefore, as a result of the Suspension, the Company does not accept
Metal Bullion bars that the Russian Refineries produced after 7 March 2022 (until there is an amendment to
the Good Delivery Rules). This may impact the price and liquidity of existing and newly sourced Good
Delivery Metal Bullion bars and hence may adversely affect the trading market and price for Metal Securities
and may cause the value of Metal Securities to decline or increase in value.
As the Crisis continues, the board of directors (the “Board”) also continues to closely monitor and assess the
impact on the Company’s portfolio operations and valuation and will take any further actions needed or as
required under the terms of the Prospectus, as facts and circumstances are subject to change and may be
specific to investment strategies and jurisdictions. Whilst it is not currently possible to predict future market
conditions and therefore determine if any further action may be required, the action that may be required
includes, but is not limited to, temporarily not accepting applications for Metal Securities, temporarily
suspending Metal Securities from trading on Stock Exchanges or a compulsory redemption of Metal
Securities.
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13.
Financial Risk Management (continued)
(f)
Market Risk (continued)
i)
Price Risk (continued)
Coronavirus disease (COVID-19)
The Board continues to monitor the advice and developments relating to COVID-19. The WisdomTree
group has and continues to implement measures to maintain the ongoing safety and well-being of
employees, whilst continuing to operate business as usual.
ii)
Interest Rate Risk
The Company does not have significant exposure to interest rate risk as the Metal Bullion, the Metal
Adjustment Contracts and the Currency-Hedged Metal Securities do not bear any interest.
iii)
Currency Risk
The Company has exposure to currency risk as the Currency-Hedged Metal Securities are priced in US
Dollars and hedged against exchange rate movements between the US Dollar and the Euro or Pound
Sterling.
However, the directors do not consider the Company to have a significant exposure to currency risk arising
from the current economic uncertainties facing a number of countries around the world as the gains or
losses on the liability represented by the Currency-Hedged Metal Securities are matched economically by
corresponding losses or gains attributable to the Metal Bullion and Metal Adjustment Contracts.
(g)
Fair Value Hierarchy
The levels in the hierarchy are defined as follows:
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the
fair value measurement of each relevant asset/liability. The Company is required to utilise the available on-
market price as the Currency-Hedged Metal Securities are quoted and actively traded on the open market.
Therefore Currency-Hedged Metal Securities are classified as Level 1 financial liabilities.
The Company holds Metal Bullion and Metal Adjustment Contracts to support the Currency-Hedged Metal
Securities as determined by the Metal Entitlement (which is calculated in accordance with an agreed formula
published in the Prospectus). The Company has contractual obligations to issue and redeem Currency-Hedged
Metal Securities in exchange for Metal Bullion as determined by the Metal Entitlement of each class of Metal
Security on each trading day. The fair value of each creation and redemption of each type and currency of
bullion is calculated by reference to the spot rate for Metal Bullion as published by the LBMA and the MSPM
indices published by Morgan Stanley. Therefore, Metal Bullion and Metal Adjustment Contracts are classified as
level 2 assets (or liabilities), as the value is calculated using third party pricing sources supported by observable,
verifiable inputs.
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13.
Financial Risk Management (continued)
(g)
Fair Value Hierarchy (continued)
The categorisation of the Company’s assets and (liabilities) are as shown below:
The Currency-Hedged Metal Securities and Metal Bullion together with the Metal Adjustment Contracts are
recognised at fair value upon initial recognition and revalued to fair value in line with the Company’s accounting
policy. There are no assets or liabilities classified in level 3.
Transfers between levels would be recognised if there was a change in circumstances that prevented public
information in respect of Level 1 inputs from being available. Any such transfers would be recognised on the
date of the change in circumstances that cause the transfer. There were no transfers or reclassifications
between Level 1 and Level 2 for any of the assets or liabilities during the year.
14.
Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets the
definition of immediate parent or ultimate controlling party. The holder of issued equity shares is HoldCo, a
Jersey registered company. WisdomTree, Inc (formerly WisdomTree Investments, Inc) is the ultimate controlling
party of HoldCo.
15.
Events Occurring After the Reporting Period
There have been no significant events that have occurred since the end of the reporting period up to the date of
signing the Financial Statements which would impact on the financial position of the Company disclosed in the
Statement of Financial Position as at 31 December 2022 or on the results and cash flows of the Company for the
year ended on that date.
16.
Non-GAAP and Non-Statutory Information
As a result of the mis-match in the accounting valuation of Metal Bullion and Metal Adjustment Contracts (held to
support the Currency-Hedged Metal Securities) and Currency-Hedged Metal Securities (as disclosed in notes 7
and 8) the profits and losses and comprehensive income of the Company presented in the Statement of Profit or
Loss and Other Comprehensive Income reflect gains and losses which represent the movement in the
cumulative difference between the value of the Metal Bullion and Metal Adjustment Contracts and the price of
Currency-Hedged Metal Securities. The Statement of Changes in Equity also reflects the fair value movements
on the Metal Bullion and Metal Adjustment Contracts (held to support the Currency-Hedged Metal Securities)
and the Currency-Hedged Metal Securities.
These gains or losses on the difference between the value of the Metal Bullion and Metal Adjustment Contracts
(held to support the Currency-Hedged Metal Securities) and the price of Currency-Hedged Metal Securities
would be reversed on a subsequent redemption of the Currency-Hedged Metal Securities and transfer of the
corresponding Metal Bullion.
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16.
Non-GAAP and Non-Statutory Information (continued)
Furthermore, each class of Currency-Hedged Metal Security is issued under limited recourse arrangements
whereby the holders have recourse only to the relevant Metal Bullion and Metal Adjustment Contracts (held to
support the Currency-Hedged Metal Securities) and not to the Metal Bullion and Metal Adjustment Contracts of
any other class of Currency-Hedged Metal Security or to the Company. As a result the Company does not make
gains from trading in the underlying Metal Bullion and Metal Adjustment Contracts (held to support the Currency-
Hedged Metal Securities) and, from a commercial perspective (with the exception of the impact of applicable
fees) gains and losses in respect of Metal Bullion and Metal Adjustment Contracts (held to support the Currency-
Hedged Metal Securities) will always be offset by a corresponding loss or gain on the Currency-Hedged Metal
Securities and the Company does not retain any net gains or losses.
The mismatched accounting values are as shown below:
To reflect the commercial results, the Company has presented below a non-GAAP and non-Statutory Statement
of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity for the period which
reflect an adjustment from Market Value to Contractual Value (as set out in the Prospectus) of Currency-Hedged
Metal Securities, together with those gains or losses being transferred to a separate reserve which is deemed
non distributable.
(a)
Non-GAAP and Non-Statutory Statement of Profit or Loss and Other Comprehensive Income
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16.
Non-GAAP and Non-Statutory Information (continued)
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