Key Group Holdings (Cayman), Ltd. (“Key Group”, “we”, “us”, “our”, or the “Firm”) is an investment
adviser organized in December 2011. Under an account management agreement (the
“Agreement”) between Key Group and an adviser to a private pooled investment vehicle (the
“Client”), the Firm provides discretionary advisory services to a trading account (the “Account”).
Key Group also provides discretionary advisory services to several pooled investment vehicles
(collectively referred to herein as “Managed Funds”). Key Group also acts as investment manager,
providing discretionary advisory services to the KGH Market Neutral Strategies Master Fund SP
(the “Fund”), a segregated portfolio of Key Group Holdings Master Fund SPC, a Cayman Islands
segregated portfolio company. The Account, the Managed Funds and the Fund are managed on a
pari passu basis.
Key Group primarily invests in the energy and natural resources sectors, as well as sectors we
believe to be tangentially related, employing an equity long/short strategy. Key Group seeks capital
appreciation from its investment strategy while taking reasonable steps to protect capital relative
to the sought-after rate of return.
Key Group provides discretionary advisory services to client accounts based on specific investment
objectives and strategies, as more specifically described in Item 8. Key Group does not tailor
advisory services to the individual needs of investors in the Account. With respect to the Managed
Funds, Key Group has the complete discretion, subject to certain limitations, to trade its strategy,
including the buying and selling of securities, the selection of broker-dealers through which to
execute trades, the negotiation of trading commissions/rates, and the voting of shares. In general,
the Fund and the Managed Funds follow the same investment strategy as the Account. As to the
Managed Funds, Key Group tailors its services to the individual needs of the client and Key Group
has, and expects in the future that it will, negotiate with the client, restrictions on investing in
certain securities or types of securities.
Millinvest, Ltd. is the owner of the Firm as of the date of submission of this form. Sunil Jagwani is
the ultimate beneficial owner of Millinvest, Ltd.
As of 31 December, 2018, Key Group had approximately US $2,916,365,378 in regulatory assets
under management, all managed on a discretionary basis.
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Pursuant to the Agreement, Key Group generally receives a management fee (the “Management
Fee”) which is billed to the Client and payable monthly in arrears.
The Client bears certain expenses of the Firm as per the Agreement, such as dividends paid, any
amounts of dividend or interest income withheld as taxes, interest paid (including interest on
capital to fund the Account), and a portion of operating expenses of the Firm. The Account may
incur brokerage and other transaction costs. For further details on Key Group’s brokerage practices
refer to Item 12 of this Brochure.
Key Group and its employees do not accept compensation, including sales charges or service fees,
from any person for the sale of securities or other investment products.
Key Group generally receives a management fee from the Managed Funds and the Fund.
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The Firm is entitled to receive performance allocations from the Fund, the Account and the
Managed Funds that is calculated based upon a percentage of the net capital appreciation of the
accounts, subject to a “loss carry-forward” provision. The performance allocation is in accordance
with the available exemption set forth in Rule 205-3 of the Investment Advisers Act of 1940, as
amended (the “Advisers Act”).
With respect of the Account, net asset value for measuring assets for the calculation of the
performance allocation includes net realized and unrealized capital gains and losses. Capital gains
are calculated net of all expenses of the Account except for the Management Fee which is
subtracted from the performance allocation.
The performance allocations may create an incentive for Key Group to recommend investments
which may be riskier or more speculative than those which would be recommended under a
different fee arrangement. Key Group has procedures designed and implemented to prevent this
conflict from influencing investment decisions.
Other than the management fee arrangements described in Item 5, no hourly, flat or asset-based
fees are charged to the accounts.
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Methods of Analysis & Investment Strategy
Key Group’s aim is to generate consistent positive returns, in varying market conditions, by
investing, on both a long and short basis, in equity securities of companies that operate
predominantly in the natural resources and energy industries, as well as certain sub-sectors we
believe to be tangentially related. Key Group relies primarily on extensive fundamental analysis of
a broad universe of issuers within the identified sectors and sub-sectors. The accounts managed
by Key Group may also invest in certain commodity and commodity-related sub-sectors and certain
industrial sub-sectors. Potential investments include global equity, fixed income, commodity and
derivatives with the aim of capital appreciation in a disciplined manner. Key Group may use
investments in commodities futures contracts or other commodity-related derivatives for both
hedging and speculative investing purposes.
Risk of Loss Factors
Investing in securities involves risk of loss that the clients should be prepared to bear. A client
should consider the following factors before investing. The following list of risk factors does not
purport to be a complete enumeration or explanation of the risks involved in an investment. Clients
are urged to consult their professional advisers and review the legal documents for an account
before deciding to make an investment.
Sector Risks The value of clients’ portfolios will be vulnerable to factors affecting the natural resources and
energy industries, such as increasing regulation and developments in the energy sector and energy
conservation incentives which can increase compliance costs and affect business opportunities for
companies in which clients may invest. Key Group’s focus on investments in select industries
means the value of a client’s portfolio may rise and fall more than the value of a similar investment
in a strategy that invests more broadly. Clients may also be affected by changing commodity prices,
which can be highly volatile and are subject to risks of oversupply and reduced demand.
Use of Leverage The use of leverage, the act of borrowing capital to make investments, exposes clients to additional
levels of risks, including (i) greater losses from investments than otherwise would have been the
case, (ii) margin calls that could force Key Group to liquidate investment positions and (iii) losses
on investments where the investment fails to earn a return that equals or exceeds the cost of
borrowing the capital in the first place. Also, a sharp decline in the value of investments held by
clients may affect Key Group’s ability to liquidate the investments quickly, resulting in increased
losses.
Short Sales Short selling, or the sale of securities not owned by clients, involves certain specific risks. Short
selling exposes clients to the risk of loss in an amount greater than the initial investment, and such
losses can increase rapidly and without limit. There is also the risk that the securities borrowed by
clients would need to be returned to the lender on short notice. Such a request could require
clients to purchase the securities in the open market at prices that are significantly higher than the
proceeds from the initial sale of the securities.
Counterparty Risk Key Group may engage in transactions in securities and financial instruments that involve
counterparties. Under certain conditions, clients could suffer losses if a counterparty to a
transaction were to default or if the market for certain securities and/or financial instruments were
to become illiquid. In addition, clients could suffer losses if there were a default or bankruptcy by
certain other third parties, including brokerage firms and banks with which clients do business, or
to which securities have been entrusted for custodial purposes.
Dependence on Key Personnel The Firm has overall responsibility for the investment management of client accounts and has day-
to-day responsibility for investment decisions on behalf of the Account. The Firm is dependent on
the strategy and management expertise of Sunil Jagwani and if the Firm were to lose his services,
clients could be adversely affected.
Trade Execution Risk Many of the investment techniques used by Key Group require the rapid and efficient execution
of transactions, or the ability to accumulate or liquidate large positions. Inefficient execution can
impair realization of the market opportunities sought with such techniques.
Small to Medium Capitalization Companies Key Group may invest client accounts in the stocks of companies with small to medium-sized
market capitalizations. While Key Group believes these stocks may provide significant potential for
appreciation, such stocks, particularly smaller-capitalization stocks, involve higher risks in some
respects than do investments in stocks of larger companies. For example, prices of such stocks are
often more volatile than prices of large-capitalization stocks. In addition, due to thin trading in
some such stocks, an investment in these stocks may be less liquid than that of larger capitalization
stocks.
Portfolio Turnover Part of Key Group’s investment strategy may involve the taking of frequent trading positions and,
as a result, turnover and brokerage commission expenses may exceed those of other investment
entities of comparable size. The frequent turnover of the portfolio may also lead to inefficient tax
consequences for clients.
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The Firm has a service agreement with Key Group Holdings USA Inc. (“Key Group USA”), a
corporation organized in Delaware, and KGHL Research (UK) Limited, (“Key Group UK”), a private
limited company incorporated in England and Wales. Key Group USA and Key Group UK are wholly-
owned subsidiaries of the Firm, and perform research and trading services for the sole benefit of
and use by the Firm.
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Pursuant to Rule 204A-1 of the Advisers Act, Key Group has adopted a Code of Ethics and a Personal
Trading Policy that establishes various procedures with respect to investment transactions in
accounts in which Key Group employees or related persons have a beneficial interest or accounts
over which an employee has investment discretion. Key Group and/or its officers or employees are
generally not permitted to trade in the same securities that may be purchased or sold for clients.
Sales of existing positions may be permitted as long as the employee has received prior approval
from the Firm’s Chief Compliance Officer (the “CCO”).
Employees (and members of their immediate households) are permitted to invest in equities, debt,
options or futures only after obtaining pre-approval from the CCO. The spirit of the Code of Ethics
and the Personal Trading Policy (the “Code”) is to prohibit personal trading that violates the law,
interferes with employees’ duties, or otherwise violates the Code and, generally, to discourage
frequent trading in employee personal accounts. In addition, employees may not acquire securities
for their own account in an initial public offering, and must obtain pre-approval from the CCO
before participating in any private placements.
All of Key Group’s employees must direct their brokers to send duplicate brokerage statements to
the CCO, or make similar alternative arrangements. These records are used to monitor compliance
with the foregoing policies.
The Code applies to any personal transactions in any financial instrument. Certain financial
instruments, such as equity, debt, options, or futures contracts, require pre-approval from the CCO
prior to effecting any transaction. Certain transactions involving government securities, open-end
mutual funds, broad based exchange traded funds (ETFs) or other instruments, while not requiring
pre-approval, are covered by the Firm’s holdings disclosure requirements under the Code.
Key Group absolutely prohibits the misuse or inappropriate communication of inside information
in connection with our securities transactions. Key Group, as well as federal and state securities
laws, also prohibits the practice of market manipulation, which comprises conduct intended to
deceive or defraud investors by controlling or artificially affecting the price of securities.
The Firm has also adopted communications guidelines designed to assist personnel in
understanding their duties and responsibilities regarding the receipt and the communication of
financial and other sensitive information.
Any outside business activities employees wish to engage in must be disclosed to, and approved
by the CCO.
Key Group has adopted a policy regarding the giving and receiving of business gifts and
entertainment.
Key Group has also adopted a policy governing political contributions, the holding of public office
and impermissible payments. This policy is designed, among other things, to address the
requirements of Rule 206(4)-5 under the Advisers Act.
Key Group’s Code of Ethics and Personal Trading Policy are available upon request.
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As an adviser and a fiduciary to client accounts, Key Group requires that clients’ interests must
always be placed first and foremost, and our trading practices and procedures prohibit unfair
trading practices. Key Group seeks to disclose and avoid any actual or potential conflicts of
interests or resolve such conflicts in our clients’ favor. Key Group has adopted the following policies
and practices to meet the Firm’s fiduciary responsibilities and to ensure our trading practices are
fair.
Aggregation
When appropriate, we may, but are not required to, aggregate client orders to achieve more
efficient execution or to provide for equitable treatment among accounts. Client accounts
participating in aggregated trades will be allocated securities based on the average price achieved
for such trades.
Allocation
Our policy prohibits any allocation of trades in a manner that would cause any client account,
including accounts where the Firm’s directors and/or employees are beneficial owners of more
than a 25% interest in the account, to receive more favourable treatment than other client
accounts.
Key Group generally allocates trades for client accounts on a
pari passu basis based on the gross
market value of the participating accounts subject however to the differing capital size, leverage,
cash availability, risk parameters and other such factors affecting such accounts and/or
arrangements. The intention of this allocation policy is that unlevered performance of each
relevant account be substantially similar to that of other accounts and/or arrangements managed
by Key Group in a similar strategy.
Key Group does not intend to execute principal trades or cross trades.
Best Execution
Key Group has authority to select the brokers and other counterparties to be used for the
Account’s, the Managed Funds’ and the Fund’s transactions and negotiate commission rates and
other compensation paid to such brokers and counterparties. Key Group selects broker- dealers
and other counterparties on the basis of best execution and in consideration of the broker’s ability
to effect the transactions; its facilities, reliability and financial responsibility; the provision or
payment by the broker of the costs of research and research-related services which are of benefit
to Key Group and to its clients; and such other factors as we deem appropriate and consistent with
applicable law. We may cause the Funds to pay higher commissions to brokers believed to offer
superior service under the circumstances, including brokers that provide investment research and
analysis to their clients, including the Account, the Managed Funds and the Fund. Accordingly,
when Key Group determines in good faith that the amount of commissions charged by a broker is
reasonable in relation to the value of the overall services provided, including internally-developed
research and other services provided by such broker, we may cause the Funds to pay commissions
to such broker in an amount greater than the amount another broker might charge.
Key Group has adopted policies and procedures that it believes are reasonably designed to achieve
best net execution on behalf of its clients and that brokers utilized have been selected based on
its clients’ best interests.
Principal Trading
Key Group’s policy and practice is to not engage in any principal transactions.
Soft Dollars
Key Group may use soft dollars generated by client accounts to pay for certain research and/or
related services provided by brokers described above. The term “soft dollars” refers to the receipt
by an investment manager of products and services (including research) provided by brokers
without any cash payment by the investment manager, based on the volume of revenues
generated from brokerage commissions for transactions executed for clients of the investment
manager. The products and services available from brokers include both internally generated items
(such as research reports prepared by employees of the broker) as well as items acquired by the
broker from third parties (such as quotation equipment). Using soft dollars to obtain investment
research and/or related services creates a conflict of interest between us and our clients. Soft
dollars may be used to acquire products and services that are not exclusively for the benefit of
clients which paid the commissions and that may primarily or exclusively benefit us. If we are able
to acquire these products and services without expending our own resources (including
management fees paid by clients), our use of soft dollars would tend to increase our profitability.
Furthermore, we may have an incentive to select or recommend brokers based on our interest in
receiving research or other products or services, rather than on our clients’ interest in receiving
most favourable execution. We may cause clients to pay commissions (or mark-ups or markdowns)
higher than those charged by other brokers in return for soft dollar benefits.
Section 28(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provides a
safe harbour to advisers who use soft dollars generated by client accounts to obtain investment
research and brokerage services that provide lawful and appropriate assistance to us in the
performance of investment decision-making responsibilities. We intend that any soft dollars that
we receive in connection with client-related matters would be within the limitations set forth in
Section 28(e) of the Exchange Act.
Key Group Cayman has a formal soft dollar arrangement in which certain client accounts may
participate. In addition, during the last fiscal year, Key Group Cayman obtained investment
research from its broker-dealers. No soft dollars were received that were outside of Section 28(e).
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Review of Accounts
The accounts managed by the Firm are reviewed on a daily basis from an operational standpoint
for proper positions and correct accounting of profit and loss and balances.
Reporting
Clients assets are held at a third-party qualified custodian. Client access to portfolio data and
analytics, including real-time position level data, is determined on a client-by-client basis, based
on the needs of the client. Key Group does not have custody of client accounts.
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Key Group does not currently employ any third-party marketers or solicitors for client referrals.
Key Group does not currently provide advice to parties other than the Fund, the Account and the
Managed Funds, though it may do so in the future. The Firm also does not provide other advisory
services to the investors in the Fund, the Account or the Managed Funds.
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Key Group will comply with the requirements of the Rule 206(4)-2 of the Advisers Act (“Custody
Rule”) with regards to custody of assets of the Fund.
The Fund’s accounts are held in custody at qualified custodians including an unaffiliated broker-
dealer or banking institution.
Annually, upon completion of the Fund’s annual audit, we will distribute to the investors the
audited financials within 120 days of the calendar year end, in compliance with the Custody Rule.
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Key Group possesses discretionary portfolio management authority over client accounts with
respect to asset allocations and direct investments as per the applicable investment management
agreement.
Key Group has the authority to determine (i) the securities to be purchased and sold for client
accounts (subject to restrictions on its activities set forth in the applicable investment
management agreement and any written investment guidelines) and (ii) the amount of securities
to be purchased or sold for client accounts.
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To the extent Key Group has been delegated proxy voting authority on behalf of its Client, the Fund
and the Managed Funds, Key Group complies with its proxy voting policies and procedures that
are designed to ensure that in cases where Key Group votes proxies with respect to Client, Fund
or Managed Funds securities, such proxies are voted in the best interest of the Account, the Fund
or the Managed Funds. Proxies are voted on a case by case basis and in consultation with the
Client. If Key Group believes it is useful to vote a proxy in relation to the Account, the Firm must
send a request to the Client prior to the record date for the vote including details of the intended
vote and the reason for desiring to vote, including any material documents or substantiation. The
Client will review each request and approve or reject the request accordingly. The Account, the
Fund and the Managed Funds trade
pari passu and therefore, in most instances Client approval
will be necessary.
Any intended vote that is based on Key Group’s subjective intent to (i) influence or control the
management or operations of a company, (ii) act in any manner that constitutes or may reasonably
be interpreted as activist investing or coordinated investing with another party, is subject to the
additional requirements specified in the Client’s policy concerning “Activist Investing and
Coordination”.
Any known conflicts of interest should be identified in the request to the Client and will be
considered and resolved, as appropriate by the Client.
Upon request, Key Group will provide the Client, investors in the Fund, and the Managed Funds,
with a copy of our proxy voting policies and procedures and/or a record of all proxy votes cast by
the Account, the Fund or the Managed Funds.
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