TIDMAPEF
RNS Number : 1994J
Aberdeen Private Equity Fund Ltd
26 June 2017
ABERDEEN PRIVATE EQUITY FUND LIMITED
AUDITED ANNUAL FINANCIAL REPORT ANNOUNCEMENT
for the year ended 31 March 2017
STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS
Net Asset Value total Share price total return{A}
return{A}
+17.5% +38.5%
2016 +6.6% 2016 +2.3%
{A} Total return represents capital return plus
dividends reinvested on the dividend date.
Discount to Net Ongoing charges (excluding
Asset Value performance fee)
23.1% 1.6%
2016 34.1% 2016 1.9%
Source: Aberdeen Asset Management & Morningstar
STRATEGIC REPORT - OVERVIEW OF STRATEGY
Introduction
The Company seeks to attract long term private and institutional
investors wanting to benefit from the growth prospects of a
diversified portfolio of PE investments. The business of the
Company is that of an investment company and the Directors do not
envisage any change in this activity in the foreseeable future.
Strategy
Further details on the Company's Strategy can be found under
"Outlook" in the Chairman's Statement and in the Manager's
Review.
Duration
The Articles of Incorporation require the Company to propose a
continuation vote at every third Annual General Meeting and the
last triennial continuation resolution was passed at the Annual
General Meeting ("AGM") held on 13 September 2016. However, with
effect from 13 September 2016, the Directors have undertaken to
propose a continuation vote annually at each AGM. Accordingly, the
next continuation resolution, proposing that the Company continue
its business as a closed-ended investment company, will be proposed
at the AGM to be held on 15 September 2017.
Investment Objective and Policy
The investment objective of the Company is to maximise total
returns to shareholders, principally through long-term capital
gains. The Company seeks to achieve its objective through
investment in a diversified portfolio of PE funds and direct
co-investments. The Company may also hold direct holdings, as an
ancillary part of its portfolio, in hedge funds, other specialty
funds, quoted and unquoted companies and securities, including
fixed interest securities, cash-equivalent investments and
cash.
The Company will not invest more than 10%, in aggregate, of the
value of its gross assets in other investment trusts or investment
companies admitted to the Official List, provided that this
restriction does not apply to investments in any such investment
trusts or investment companies which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other investment trusts or investment companies admitted
to the Official List. In any event, the Company will not invest
more than 15% of its gross assets in other investment trusts or
investment companies admitted to the Official List.
Investment Process and Investment Opportunities
The Manager's key objective is to select PE managers which it
believes will produce, over time, superior risk-adjusted returns in
their chosen investment strategy and which can demonstrate
significant competitive advantages compared with other funds in
their peer group. The focus is on the individual merits of
investments, but the industry and economic environment in which
that manager is operating is also taken into consideration.
The investment process is systematic and disciplined. Due
diligence is at its heart and typically around three to four months
are spent analysing a potential manager, a process which includes a
number of on-site visits with that manager. The process culminates
in the provision of a detailed report that is then presented to,
and discussed by, the Manager's Investment Committee (the
"Investment Committee"), where a selection decision is made on all
potential funds. The Investment Committee has to approve an
investment before it can be recommended to the Company's Board for
approval. The Manager will also conduct operational and legal due
diligence on the potential manager and proposed investment.
On-going monitoring is similarly robust, and includes regular
reviews of market conditions and their potential effect on the
underlying funds and any direct PE investment. In response to the
conclusions drawn from this process, the Investment Committee
recommends to the Company's Board whether or not to retain an
investment.
Asset Allocation
The Company seeks to hold a portfolio of investments which is
broadly diversified by industry sector, investment stage and size
of investment, as well as by strategy. The Company intends to
invest the majority of its portfolio in the buyout, growth capital,
distressed and venture capital funds sectors. Up to 25% of the
portfolio, calculated at time of investment, may be invested into
co-investments.
Risk Diversification
The Manager actively monitors the Company's portfolio and
attempts to mitigate risk through diversification. Not more than
20% of the NAV, at the time of investment, is permitted to be
invested in any single investment. If the Company acquires a
portfolio of investments in a single transaction, this limitation
will be applied individually to each of the underlying investments
acquired and not to the portfolio as a whole.
Gearing
On 31 March 2016 the Company entered into a secured GBP40
million three year committed revolving credit facility, with Lloyds
Bank Plc ("Lloyds"). The credit facility is available for general
corporate and working capital purposes including bridging capital
contribution commitments in accordance with the investment policy.
The Company's gearing policy is to ensure that its aggregate
borrowings do not exceed a maximum of 25% of NAV. During the year
to 31 March 2017 and up to the date of this report, the Company has
not made any drawings under the Lloyds facility. The Company's
obligations under the facility are secured against the Company's
assets pursuant the terms of a Guernsey security agreement and an
English security deed.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to
assess the Company's success in achieving its objective and
determine the progress of the Company in pursuing its investment
policy. The main KPIs identified by the Board in relation to the
Company which are considered at each Board meeting are as
follows:
KPI Description
NAV and NAV The Board considers the Company's NAV
total return total return figures to be the best
indicator of performance over time and
these are therefore the main indicators
of performance used by the Board. A
table showing the NAV total return over
one, three and five years is shown in
the Annual Report.
Share price The Board also monitors the price at
and Share which the Company's Shares trade relative
price total to the Company's peer group and a number
return of major indices on a total return basis
over time. Graphs showing the total
share price return against the peer
group and major indices are shown in
the Annual Report.
Discount/Premium The discount/premium relative to the
to NAV NAV per Share represented by the Share
price is closely monitored by the Board.
The objective is to minimise fluctuations
in the discount/premium relative to
similar investment companies and in
seeking to achieve this objective the
Company may, subject to market conditions
and if considered to be in the best
interests of shareholders, use share
buy backs or the issuance of new shares.
A graph showing the share price discount
relative to the NAV is also shown in
the Annual Report.
Ongoing Charges The Board monitors the Company's operating
Ratio costs carefully. Ongoing charges for
the year and previous year are disclosed
under "Strategic Report - Results" below.
Risk Management
There are a number of risks which, if realised, could have a
material adverse effect on the Company and its financial condition,
performance and prospects. The Board has undertaken a robust review
of the principal risks and uncertainties facing the Company
including those that would threaten its business model, future
performance, solvency or liquidity. Those principal risks are
disclosed in the table below together with a description of the
mitigating actions taken by the Board. The principal risks
associated with an investment in the Company's Shares are published
monthly on the Company's factsheet or they can be found in the
pre-investment disclosure document published by the Manager, both
of which are available on the Company's website. The Board reviews
the risks and uncertainties faced by the Company in the form of a
risk matrix and heat map at its Audit Committee meetings.
Description Mitigating Action
Investment strategy and The Board keeps under review
objectives - the setting the level of discount at
of an unattractive strategic which the Company's Shares
proposition to the market trade, in absolute terms
and the failure to adapt and relative to its peer
to changes in investor group, as well as the investment
demand may lead to the objective and policy. It
Company becoming unattractive regularly reviews the Company's
to investors, a decreased strategy and receives regular
demand for shares and updates from the Manager
a widening discount. and investor relations reports
from the Broker on the market.
The Board is updated at
each Board meeting on the
make-up of and any movements
in the shareholder register.
Investment portfolio and The Board sets, and monitors,
investment management its investment restrictions
- poor investment selection, and guidelines, and receives
inadequate due diligence, regular Board reports which
lack of effective monitoring include performance reporting
and investing outside on the implementation of
of the investment restrictions the investment policy, the
and guidelines set by investment process and application
the Board could result of the Board guidelines.
in poor performance and The Manager attends each
inability to meet the quarterly Board meeting.
Company's objectives.
Gearing - increasing the The Company has a GBP40
level of gearing could million credit facility
result in the Company that may be used to fund
becoming over-geared, future commitments. The
unable to meet its financial Board sets a gearing limit
obligations, or unable and receives regular updates
to take advantage of potential from the Manager on the
opportunities and any assets and liabilities of
of these could result the Company and reviews
in a loss of shareholder these at each Board meeting.
value. The Board receives regular
reports and modelling from
the Manager on the likely
pattern of future calls
and the expected rate of
realisations from the portfolio.
Financial - the financial The financial risks associated
risks associated with with the Company include
the portfolio could result overcommitment risk, market
in losses to the Company. risk, liquidity risk and
credit risk, all of which
are mitigated through regular
consultation with the Manager.
The Manager reports to the
Board using a range of forecast
scenarios to determine the
impact of future drawdowns
and the likely rate at which
future realisations will
generate cash. The Manager
monitors the Company's liquidity
on a frequent basis and
provides regular updates
to the Board. Further details
of the steps taken to mitigate
the financial risks associated
with the portfolio are set
out in note 20 to the financial
statements.
Operational - the Company The Board receives annual
is dependent on third reports from the Manager
parties for the provision (ISAE 3402 and six monthly
of all systems and services internal controls reports)
(in particular, those and from Ipes (AAF 01/06)
of the Aberdeen Group on internal controls and
and Ipes) and any control risk management and receives
failures and gaps in these compliance and administration
systems and services could reports at each Board meeting.
result in a loss or damage Further details of the internal
to the Company. In addition, controls which are in place
failure to comply with are set out in the Directors'
relevant regulation (including Report. The Board relies
Guernsey Company Law, upon its third party service
the Financial Services providers to ensure the
and Markets Act, the Alternative Company's compliance with
Investment Fund Managers applicable law and regulations
Directive, Accounting and from time to time employs
Standards and the FCA's external advisers to advise
Listing Rules, Disclosure on specific concerns.
Guidance and Transparency
Rules and Prospectus Rules)
may have an impact on
the Company.
PE Investment - PE investments Under its investment policy
are long-term in nature the Company may participate
and they may take a considerable in co-investments and acquire
period to be realised. secondary investments as
Unquoted investments are well as subscribing for
less readily realisable LP interests. The Manager
than quoted securities. reviews the valuations produced
Such investments may therefore by the GPs of LP investments
carry a higher degree and reports to the Board.
of risk than quoted securities. The Manager seeks to mitigate
In valuing its investments performance risk through
the Company relies to effective investment allocation
a significant extent on and the selection of high
the accuracy of financial quality investments whose
and other information managements have strong
the funds in its portfolio track records.
provided to the Manager;
this information is typically
unaudited and updated
on a quarterly or six-monthly
basis. Furthermore, PE
Investments valuations
are subject to the economic
performance of the countries
that the companies are
based in or trade with,
wider global economic
trends and the performance
of listed peer multiples
which may influence valuations
significantly. If public
markets decline or economic
growth falters then this
will impact negatively.
Promoting the Company
The Board recognises the importance of communicating the
long-term attractions of your Company to prospective investors both
for improving liquidity and enhancing the value and rating of the
Company's Shares. The Board believes an effective way to achieve
this is through subscription to and participation in the
promotional programme run by the Aberdeen Group on behalf of a
number of investment companies under its management. The Company
supports the Aberdeen Group's investor relations programme which
involves regional roadshows, promotional and public relations
campaigns. The purpose of these initiatives is both to communicate
effectively with existing shareholders and to gain new shareholders
with the aim of improving liquidity and enhancing the value and
rating of the Company's Shares. The Company's financial
contribution to the programmes is matched by the Aberdeen Group.
Aberdeen Group's Head of Brand reports at least annually to the
Board giving analysis of the promotional activities as well as
updates on the shareholder register and any changes in the make-up
of that register.
Alternative Investment Fund Managers Directive ("AIFMD")
The Company has appointed AFML as its AIFM. The management
agreement with AFML complies with the AIFMD regulatory regime and
under this arrangement, AFML has been appointed to provide
investment management, risk management, administration and
promotional services. The Company's portfolio is managed by AAML by
way of a group delegation agreement in place between AFML and AAML.
In addition, AFML has sub-delegated promotional services to
AAML.
AFML has notified the UK Financial Conduct Authority in
accordance with the requirements of the UK National Private
Placement Regime of its intention to market the Company (as a
non-EEA AIF under the Directive) in the UK. The AIFMD requires
AFML, as the AIFM of the Company, to make available to investors
certain information prior to such investors' investment in the
Company. The Company's Pre-investment Disclosure Document ("PIDD")
is available for viewing on the Company's website.
Board Diversity
The Board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge in order
to allow the Board to fulfill its obligations. When Board positions
become available as a result of retirement or resignation, the
Company ensures that a diverse group of candidates is considered.
No new appointments have been made to the Board since 2009, and at
31 March 2017 there were four male Directors. The Board's Statement
on diversity is set out in the Annual Report.
Environmental, Social and Human Rights Issues
The Company has no employees as all its executive functions are
undertaken by the Manager and other service providers. There are no
disclosures to be made in respect of employees. The Company's
socially responsible investment policy is set out in the Annual
Report.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the
operations of its business, nor does it have direct responsibility
for any other emissions producing sources.
Viability Statement
The Company does not have a formal fixed period strategic plan
but the Board formally considers risks and strategy at least three
times per year. The Board considers the Company to be a long term
investment vehicle, but for the purposes of this viability
statement has decided that a period of five years is an appropriate
period over which to report. The Board considers that this period
is more representative of a typical PE cycle and reflects a balance
between the desirability of looking out over a long term horizon
and the inherent uncertainties involved.
In assessing the viability of the Company over the review period
the Directors have focussed upon the following factors:
- The principal risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The historical level of demand for the Company's Shares;
- The flexibility of the Company's GBP40 million loan facility
which matures in March 2019; and,
- Financial modelling including the expected future rate of
drawdowns versus likely rate of realisations under varying market
conditions.
Taking into account the Company's current position and the
potential impact of its principal risks and uncertainties, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due for a period of five years from the date of this Report. In
making this assessment, the Board has considered that factors such
as significant economic or stock market volatility, a substantial
reduction in the liquidity of the portfolio, or changes in investor
sentiment could have an impact on its assessment of the Company's
prospects and viability in the future. In particular the Board
recognises that this assessment makes the assumption that the
resolution to continue the Company, which is now put to
shareholders annually at each AGM, is passed at the AGM on 15
September 2017 and in the four subsequent years.
Future
Many of the non-performance related trends likely to affect the
Company in the future are common across all closed ended investment
companies, such as the attractiveness of investment companies as
investment vehicles and the impact of regulatory changes (including
MiFID II and Packaged Retail Investment and Insurance Products).
These factors need to be viewed alongside the outlook for the
Company, both generally and specifically, in relation to the
portfolio. The Board's view on the general outlook for the Company
can be found in the Chairman's Statement, whilst the Manager's
views on the outlook for the portfolio are included in the
Manager's review.
Howard Myles
Chairman
26 June 2017
STRATEGIC REPORT - CHAIRMAN'S STATEMENT
I am pleased to present to shareholders the Annual Report and
financial statements of the Company for the financial year ended 31
March 2017.
Performance and Dividend
During the period under review the Net Asset Value ("NAV") per
Share rose by 14.2% to 152.24p. Inclusive of the two dividends,
2.2p and 2.0p (total 4.2 pence) paid respectively in September 2016
and March 2017, shareholders received a sterling NAV total return
of 17.5% for the period.
The movement in NAV was driven by positive investment
performance and by the exposure in the portfolio to US assets as a
result of the strengthening in the US dollar against sterling over
the year.
Owing to timing differences in committing to new private equity
funds and co-investments, and the varying nature of many of the
underlying assets, there is no appropriate benchmark with which to
compare the Company's performance.
At the September 2016 Annual General Meeting the Company
announced that in the absence of unforeseen circumstances, the
Board would expect to pay each year minimum total dividends of 4.0p
per share per annum, commencing with two dividends of 2.0p per
Share relating to this financial year to 31 March 2017 (2016 -
2.2p). This represents a change from the previous distribution
policy whereby the Company would distribute approximately 10% of
the received distributions (net of recallable distributions) each
year, subject to a minimum of at least 1.0p per share per
annum.
Accordingly, the first dividend of 2.0p for the Half Year to
September 2016 was paid in March 2017. The Board is therefore
recommending a final dividend of 2.0p per Share, making a total
payment for the financial year of 4.0p per Share (2016 - 2.2p).
Subject to approval of shareholders at the AGM on 15 September
2017, this will be payable on 20 September 2017 to shareholders on
the register on 18 August 2017.
Share Capital Management
During the period under review no Shares were purchased in the
market. The Board will continue to monitor the level of discount to
NAV at which the shares trade, both in absolute terms and against
the discounts of comparable companies. The Board has sought
approval to buy back Shares and is willing to do so, but will
continue to take into account the market capitalisation of the
Company and compare potential returns available from new
investments.
Discount
On 31 March 2017 the share price discount to NAV stood at 23.1%,
a substantial tightening from the 31 March 2016 level of 34.1%.
Since the period end the NAV has decreased to 148.23p per Share and
the discount has narrowed to 10.6% (based on the NAV as at 30 April
2017 and Share price of 132.5p as at 23 June 2017).
As I discussed in my Half Year review, discounts (to NAV) for
most listed private equity vehicles have remained a feature of this
Investment Company subset for most of the last decade. I have also
discussed in a number of my previous reviews the likely reasons for
this and, broadly speaking, these remain the same investor
perceptions of private equity valuations' robustness, and also the
more constrained share liquidity relative to listed Investment
Companies in other sectors.
Nevertheless, more recently the sector has rerated. This appears
to be being driven by ongoing strong NAV growth and continued
realisations for private equity in general. More fundamentally
there appears to be a better understanding across a wide range of
listed private equity buyers that the drivers of growth and
realisations are solidly in place. These drivers range from simple
demand for the asset class (greater cash flows driving more deals,
and therefore, realisations) to the clear evidence that operational
intervention in privately owned businesses does have measurable
impacts on longer term success and the record of achieving
realisations at prices above book value.
As noted in my Half Year review I felt that the Company's then
discount of 27.4% was unjustified and I believe that this remains
the case. As the value in the sector has become more widely
recognised, a number of other listed private equity funds have
rerated to tighter levels than your Company. Recent history in this
sector suggests that these anomalies, in the absence of material
NAV performance differences (which do not appear to be the case
currently) tend to be short-lived, and that a process of discount
equalisation can occur.
Your Board believes that with the high level of engagement of
your Manager with existing and potential shareholders, ongoing
strong returns and further development of the portfolio, there
remains a compelling case for investment in the Company's Shares.
Specifically addressing the Share liquidity aspect, the Manager's
high level of focus on prospective shareholders, combined with the
efforts of the Company's broker, is playing an important role in
improving our Share liquidity. Consequently we have seen a material
recent improvement in shareholder register turnover and we believe
that these efforts may lead to further tightening in the Company's
discount.
Gearing
On 31 March 2016 the Company entered into a GBP40m revolving
credit facility with Lloyds Banking Group. The facility was renewed
and increased to support the higher level of investment that took
place throughout 2016, and to ensure efficient capital usage. The
Manager does expect to draw on this facility though the timing of
that is dependent on the pace of investment, underlying capital
calls / distributions and/or any secondary market disposals.
Continuation Vote
In 2011 the Company's Articles of Incorporation were amended to
introduce a three-yearly continuation vote with the first vote
being passed in 2013. The Company's second three-yearly vote took
place in September 2016 and was passed with a high level of
Shareholder support. At the Annual General Meeting convened on 13
September 2016 the Company announced that (in addition to the
revised Dividend policy, above) it would hold an annual
continuation vote (to replace the existing triennial vote)
commencing with the AGM in September 2017. At the same time a new,
reduced and simplified management fee was introduced.
Your Board believes that it is in all shareholders' interests
that the Company continues. Whilst large buyout names command high
pricing in the secondary market, they are not all at par
valuations. The Company's increased focus on investing in smaller
deal size GPs is expected to deliver better performance (relative
to large buyout) in the longer term, however secondary valuations
can be wider. Any forced disposal programme could be to
shareholders' disadvantage through crystallisation of those wider
discounts on disposal. Likewise, whilst co-investing can also help
with longer term fee mitigation, co-investments tend to have lower
liquidity in the secondary market and higher discounts. Any forced
divestiture would, we believe, be to shareholders'
disadvantage.
Having taken soundings from our larger shareholders your Board
believes that the majority of shareholders support continuation.
Consequently, and combined with the outlook for the Company and the
secondary pricing referred to above, your Board recommends that
shareholders vote in favour of the Company's continuation.
Aberdeen Asset Management
The Board notes the merger between the parent company of the
Company's Manager, Aberdeen Asset Management PLC, and Standard Life
PLC which, subject to regulatory approvals, is expected to complete
in August this year. In the interim, the Board will continue to
monitor developments closely to ensure that the management team
remains focused upon the interests of the Company and its
shareholders.
Activity Levels
Your Manager has continued to be active over the year,
completing the following transactions:
Primary Fund Commitments:
- MTS Health Investors VI, a US lower mid-market healthcare focused fund;
- Northzone VIII, a Nordic venture capital fund;
- Nazca IV, a Spanish lower-mid market fund; and,
- Summa Equity I, a first time Nordic regional fund.
Co-investments:
- Imprima, an Italian digital textile printing business;
- Source Photonics, a global communications and data connectivity business; and,
- Indecomm Global Services, an IT services business with
operations in SE Asia, India and the US.
Secondary Market Transactions:
- The purchase of Sagard 3, a 2013 vintage French lower mid-market fund; and,
- The sale of Thomas H Lee Parallel Fund VI, a 2006 vintage Primary US buyout fund.
Subsequent to the financial year-end your Manager completed one
further co-investment which was TWMA, a UK headquartered business
focused on waste disposal for the oil and gas industry.
Portfolio Performance
I am pleased to report that strong investment performance has
been generated from a wide range of investments from GPs such as
Thoma Bravo and Silverlake (relating to their 2008 and 2007
vintages funds, respectively), and also more recent GP additions
such as The Jordan Company and CCMP, which relate to 2013 and 2014
vintage fund commitments. I also note that this has been achieved
over a period where your Manager has continued to make new
investments, which has added a more recent 'J-curve' element to the
portfolio, therefore acting as a shorter term drag on overall
performance. The most material negative performance from a mature
fund was from Lion Capital III, a consumer focused fund, which saw
mark downs across a range of its portfolio companies. Whilst some
of these adjustments relate to specific Lion portfolio company
issues, we are seeing challenges across a range of consumer names,
partly as this sector continues to adjust to the ongoing transition
from physical to digital models. Further details of performance are
given in the Manager's Review below.
Outlook
In my 2016 Half Yearly Report I expressed some concern over the
uncertain policy direction in the US given the then imminent US
election and also noted our caution on the Eurozone, due to
continued growth issues in this region.
The outcome of the US election is now known, though uncertainty
remains in a number of areas. Despite initial setbacks on
dismantling 'Obamacare', the House of Representatives has now voted
to dismantle the Affordable Care Act, with potential sweeping
changes to the US Healthcare system. However, it remains to be seen
whether the President will secure sufficient support in Congress to
carry out other parts of his programme.
In Europe, political volatility seemed to ease after the May
2017 French Presidential vote and the calling of a snap UK general
election for June 2017, where it was widely expected that Prime
Minister May would prevail with an increased majority. The
subsequent 'hung-parliament'([i]) result will probably lead to a
change of approach to UK/EU Brexit negotiations (from both sides),
increased volatility for sterling in the shorter term, and almost
certainly further change in the UK political landscape. Slightly
tempering this volatility, and looking further afield, the failure
of Italy's main parties to agree on a new election law, could mean
that Italian elections are now pushed out further to 2018.
Private Equity as an asset class has continued its strong post
Global Financial Crisis run with further buoyant fund raising. With
the substantial capital raised by PE funds in 2016 it is of little
surprise to see the value of older, unspent private equity
commitments ('dry powder') continue. In 2016 the value of these
unspent commitments was estimated at $821bn. Much of this relates
to mega sized LBO funds. Purchase multiples have remained at
historically high levels, and while they appear to have decreased
from their recent highs in 2015 and 2016, they remain expensive at
9.4x EBITDA.
Accordingly the Company's strategy is to continue to focus on
those opportunities in the market that are differentiated in some
respect, but also can access relatively attractive valuations.
These are mainly to be found in smaller sized funds that are
targeting smaller deals. Our 2016 investments in US manager MTS
Health Investors and Spanish manager Nazca are typical of this
strategy. The latter manager, by way of example, has a demonstrable
track record in acquiring smaller, family owned businesses that may
have experienced generational succession problems. It is these
opportunities in more inefficient deal sourcing markets which your
Manager continues to find attractive.
I noted in the Half Year review that the residual value in older
vintage investments is reducing following continued exit activity.
This remains the case, and as we indicated, your Manager is
accelerating that process through opportunistic engagement with the
private equity secondary market. The sale of 2006 vintage
investment Thomas H Lee Parallel Fund VI is a good example of
this.
Primary fund investment activity for this portfolio is likely to
remain more muted for the remainder of 2017, with a greater focus
on co-investments and investments that have a low proportion of
unfunded commitments. These will typically be primary funds which
have already made investments and where those deals remain carried
at cost, or 'early secondaries', (like the recent Sagard 3
transaction, a 2013 vintage) that are no longer Primary funds due
to time elapsed, but for specific reasons may have opened up the
fund to new investors.
Finally, your Manager notes in its investment report that the
largest funds being raised are accounting for an ever greater
proportion of overall fund raising. There are important
implications for the alignment of interests between General
Partners (the private equity managers we invest in) and Limited
Partners (investors into funds). Your Board is pleased that your
Manager continues to push GPs hard on all manner of alignment
issues. In a maturing market it remains vital that end investors'
interests are as closely aligned to the originators of performance
as possible.
Howard Myles
Chairman
26 June 2017
STRATEGIC REPORT - MANAGER'S REVIEW
At the end of March 2017, 84.9% of the Company's NAV was
invested in 33 private equity funds and 10.3% in nine
co-investments. 4.8% was held in cash([ii]) .
Performance Commentary
The 33 private equity funds in the Company's portfolio invest
across a wide range of sectors, geographies and market
capitalisations, providing exposure in aggregate to 370 underlying
companies([iii]) .
In local currency terms the portfolio generated a total return
of 8.8%([iv]) for the period under review. Thoma Bravo IX Fund LP,
a 2008 commitment, was the single largest contributor to
performance. Silver Lake Partners III LP and Resolute Fund III LP,
respectively 2007 and 2013 investments also delivered strong
returns. The investment portfolio's performance was helped by a
considerable number (23([v]) ) of company exit events, whether by
IPO, trade or secondary sale([vi]) from funds. The majority of
these exits (18) were at a premium to held value. Further
investment performance was delivered via uplifts in carrying value
for ongoing investments.
We show below the movement of the Company's investment portfolio
from the opening value to the closing value([vii]) :
Largest Positive Performance by Fund([viii])
Fund Performance ($m)
Thoma Bravo IX Fund L.P. +3.7
Silver Lake Partners III L.P. +2.3
Resolute Fund III L.P. +2.1
Pine Brook Capital Partners L.P. +1.8
CCMP Capital Investors III L.P. +1.8
Rest of the portfolio +8.1
Total +19.8
Thoma Bravo Fund IX, a US growth and buyout fund, saw Deltek and
LANDesk Software produce the largest uplifts following their sales
to Roper Technologies and Clearlake Capital respectively. This
consistently strong performing fund is now drawing to the end of
its life.
The remaining investments in Silver Lake III increased by 21%
over 2016. Throughout the year the fund also provided liquidity for
investors by selling shares of its positions in NYSE([ix]) listed
Alibaba Group Holding Ltd and Godaddy Inc.
Transcendia (formerly Transilwrap Company) and DiversiTech
Corporation were the main drivers for the performance of Resolute
Fund III. The former manufactures plastic film for a range of end
industries, and the latter provide parts for the HVAC([x])
trade.
Pine Brook Capital Partners' valuation uplift was driven by
uplifts for Essent Group (NYSE listed), Forge Energy, Origin
Bancorp and Green Bancorp (NASDAQ([xi]) listed).
The performance produced by CCMP Capital Investors III resulted
from their investments in Jetro Cash & Carry, PQ Corporation
and Jamieson Laboratories. PQ Corporation is a producer of
speciality inorganic chemicals, and Jamieson Laboratories is a
manufacturer and distributor of vitamins.
Largest Negative Performance by Fund([xii])
Fund Performance ($m)
Lion Capital Fund III L.P. -1.6
Hg Capital 5 Co-Invest 1 L.P. -0.9
Northzone Ventures VI L.P. -0.7
APEF Investments (Europe)
S.a.r.l. -0.2
Lion Seneca Cayman 3 L.P. -0.2
Total -3.6
Lion Capital Fund III's portfolio experienced decreases in value
across a range of portfolio holdings including Bumble Bee, All
Saints and John Varvatos. Lion had previously agreed a sale for
Bumble Bee in 2015 which failed to complete.
HgCapital 5 Co-Invest1 LP, the holding partnership for our
co-investment in Achilles, was marked down due to weaker growth at
a time of increasing expenditure on technology and customer
service. The business has some sensitivity to declining spending in
the Oil and Gas industry.
Northzone VI, a venture capital fund, saw valuation declines in
portfolio companies Widespace, Sticky and eProspects. Despite this,
the fund remains a top performer, having already seen exits at
significant multiples of cost. The fund's DPI([xiii]) ratio is
greater than 1, meaning that all our original capital has been
returned via these distributions.
The decline for APEF Investments (Europe) S.a.r.l., the holding
vehicle for our recent investment in the Spanish lower mid-market
fund Nazca IV, relates to the set-up costs for this holding
structure. Nazca IV had a marginally positive year.
The small decrease in Lion Seneca Cayman 3, the holding
partnership for our co-investment in French optical retailer Alain
Afflelou, reflects a narrow miss on their budgeted EBITDA targets.
Despite this, the business is performing well and developing a
range of additional businesses and product lines.
Portfolio Activity
The Company was active over the financial year, completing a
series of fund commitments, secondary transactions and
co-investments.
New fund commitments were made to Northzone VIII (May 2016,
EUR12m), MTS Health Investors IV (May 2016, $15m), Nazca Fund IV
(October 2016, EUR10m) and Summa Equity Fund I (No.2) AB (November
2016, SEK145.5m).
A EUR10m "early secondary" investment in Sagard 3, a French
mid-market fund was completed in December 2016.
Further information on all fund investments is provided in the
"Private Equity Portfolio" section.
Three co-investments were also completed during the financial
year. These were: Imprima, a consolidation play in European digital
textile printing; Source Photonics, a global provider of
communications and data connectivity components; and Indecomm
Global Services([xiv]) , a cross-border IT services and outsourcing
company with principal businesses centres in Singapore and
Bangalore.
We also sold the Company's commitment in Thomas H Lee Parallel
Fund VI LP in March 2017 through the private equity secondary
market. This transaction (at a small discount) was part of an
ongoing review of older portfolio vintages where there may be
opportunities to exit in full, and subsequently reinvest into
investments offering higher potential returns.
Calls for new investments
The Company paid calls of $48.4m over the year ($26.4m the
previous year)([xv]) funding over 30 new investments and a number
of follow-on investments.
Five Largest Aggregate Fund Calls([xvi]) US$m
Sagard 3 FPCI 5.2
Wisequity IV 4.1
Resolute Fund III L.P. 3.4
Exponent Private Equity Partners
III L.P. 3.1
MML Capital Partners Fund VI L.P. 3.0
As discussed above, the Company committed EUR10m to an early
secondary investment opportunity in Sagard 3 FPCI. This fund had
already completed six investments, with a seventh signed shortly
after the Company's commitment. As such Sagard 3 is 44% drawn as at
March 2017 with a strong pipeline of new acquisitions.
The Company committed EUR10m to Wisequity IV in the previous
financial year. This Italian lower mid-market fund has been
particularly active acquiring Corob Group, Tapi Group and Taatus.
It also merged two additional acquisitions, KBC Group and Guarisco
Group into Imprima. This is a digital textile printing business
into which we have also co-invested.
Resolute Fund III completed three new acquisitions during the
period, Borchers Group Limited, Parts Authority and Dimora Brands.
Follow-on acquisitions were also added for existing businesses,
Vertical Bridge Holdings and Gulfstream Services.
Exponent III continued with its investment programme during the
year, completing three investments. Following these acquisitions
(Racing Post, Leisure Pass Group and The ENRA Group) the fund is
now over 50% called.
Following the commitment to MML Capital Partners VI in December
2015, this fund has invested in seven companies to date. Two of
these were acquired during this financial year, Universal Plant
Services and SVP Groupe. With the exception of Learning Curve, all
portfolio companies completed add-on acquisitions during the
year.
Distributions
The Company received cash distributions of $39m during the
period under review (2016: $42.8m).
Five Largest Aggregate Fund Distributions([xvii]) US$m
Thoma Bravo IX Fund L.P. 9.2
Silver Lake Partners III L.P. 4.3
Gores Capital Partners III L.P. 1.8
Lion Capital Fund III L.P. 1.6
Coller International Partners V
L.P. 1.6
The Thoma Bravo Fund IX was successful in securing exits for
most remaining portfolio companies. Proceeds were received for the
sales of InfoVista, The Attachmate Group, Deltek and LANDesk
Software. Only one company remains in the portfolio.
The distributions from Silver Lake Partners III relate to
numerous share sales of Alibaba Group Holding Ltd during the year.
Proceeds were also received from the sale of Vantage Data Centers
and the partial sale of shares in NYSE listed Godaddy Inc.
Proceeds received from Gores Capital III related to the fund's
sale of Hay Group to Musashi Simitsu, a Japan-based manufacturer of
automotive components for a total enterprise value of EUR495m.
There were also two significant recapitalisations([xviii]) for
Tweddle and US Farathane.
Proceeds received from Lion Capital Fund III during the period
relate to the fund's trade sale of ghd to Coty at an enterprise
value of GBP420m.
Coller International Partners V received proceeds from numerous
underlying funds and investments. These included proceeds from CAPE
investments, RBS Special Opportunities Fund, PDSOF (Series C), SVG
Capital plc and the sale of Penton Business Media.
Market News and Private Equity Environment
More recently global markets have been characterised by lower
volatility driven by a variety of factors, the most significant is
likely to be the combined 'relief-trades' post the recent US and
French elections, with the belief that there was some certainty
that Brexit would happen. As the Chairman notes in his review, the
unforeseen 'hung-parliament' result from June's UK General Election
has significant implications for not only the timetable for the
UK's exit from the European Union, but also the 'soft' vs. 'hard'
nature of that exit. In addition to this, and the inevitable change
we are likely to see in UK politics, we expect greater shorter term
volatility on key sterling currency pairs and some impact on UK and
European public equity indices.
Specifically in the US, we have seen the VIX([xix]) volatility
index trading at historically low levels. These levels incorporate
the 'pro-domestic' sentiment after Donald Trump's election (and of
course all ongoing talk of extra-normal Russia relations and
impeachment). During this period we have seen renewed levels of US
equity buying, much of that seemingly from US retail investors.
We counsel some caution given these horizon risks (particularly
on changes to the nature and timing of Brexit), but it is clear
that US consumer and business sentiment has improved since the
Presidential election, allowing the Federal Reserve to tighten with
a 25bp hike in in interest rates in March 2017. President Trump has
brought a unique style to the Presidency, much of it highly
controversial. Looking through that, and as we highlighted in our
Half Yearly Report, we are optimistic on our investments in the US,
and our bias towards the US lower mid-market (in respect of our
more recent US investments) should benefit from any pro-domestic
corporate stance that is increasingly likely from this US
Administration.
In emerging markets, Chinese GDP growth has edged up (to 6.8% in
Q4 2016), but non-financial corporate leverage remains high and
efforts continue by Chinese authorities to contain and reduce these
levels. Asian markets and their private equity opportunities remain
interesting to us and we are as focused on the macro issues as we
are on GP due diligence, given the many risks.
Private equity valuations remain high, in absolute terms, though
they continue to ease relative to aggregate highs recorded in 2015
(10.3x). Based on data from S&P LCD([xx]) this level had fallen
to10x in 2016, and has slipped further to 9.4x (Q1 2017 data).
Across our global investment programme we see a spread of
valuations, but with our increased focus on smaller funds in more
regional markets, we tend to see transaction multiples come in at
below this level.
Calendar year 2016 has proved to be an extraordinary year for
this asset class both in portfolio activity levels, investor
interest and fund raising, the latter being a key litmus test for
near term sentiment (but not necessarily for longer term returns).
With $347bn([xxi]) raised by 830 private equity funds closing in
2016 there is no shortage of capital in the sector. We note with
interest the ongoing polarisation in the sector i.e. more dollars
being raised by fewer funds. Relative to the above statistics, in
2015, 945 funds raised $329bn. As this continues it is inevitable
that dry powder levels will rise if the industry wants to keep
valuations in some degree of check. Restraint and sensible paced
deployment of LPs' commitments is to be lauded, though too great a
delay will inevitably hurt headline IRRs over time.
With this polarisation, our greater concern comes with the
levels of investor alignment and governance in larger funds. Good
GPs (across all size brackets) are offering appropriate alignment,
but it is by no means universal. We test alignment through
monitoring levels of GP commitment, assessing performance fee
structures, looking at the wording around 'key man' events and many
other soft factors, all in addition of course to base management
fee levels, hurdle rates and fee offsets. Picking two of these, we
have seen relative (to fund size) levels of GP commitment fall, and
for a number of high profile funds, the removal of hurdle rates,
the latter creating some negative headlines for the industry,
though we and many other LPs have worked hard behind the scenes to
lobby for greater LP alignment via these other factors.
As we have shown through our investment programme in recent
years, our focus and strategy has been on smaller funds where many
of these alignment issues are not so prevalent. We continue to work
with managers, often long before their formal fund raising, on best
practice and see that being reflected in the LPAs([xxii]) that we
are signatories to.
Portfolio Strategy and Outlook
In our Half Yearly Report last year we re-iterated our desire to
increase the portfolio's exposure to co-investments. Including post
year-end allocations we now have exposure to ten names, with half
of that number sourced via GP relationships that sit outside of
this portfolio. We have been keen to diversify sponsor exposure,
capitalising on the investment and relationship programme we have
across our broader private equity business. These co-investments
carry materially lower fees and thus the longer term performance
impact, should that portfolio achieve its objectives, is likely to
be substantial.
We are maintaining our overall co-investment exposure target of
around 20-25% of the portfolio, and also continuing with our review
of older vintage investments. As such we seek to take advantage of
strong pricing where we believe we can better deploy the proceeds
elsewhere. This exercise is not necessarily limited to our
pre-GFC([xxiii]) investments, and in certain situations where the
original purchase or commitment 'buy-case' has changed, either for
portfolio construction reasons, stock specific events, or team
changes (at GP or PFC([xxiv]) level), our intention is to continue
to be active private equity managers.
In the absence of any fund sales this financial year we had
anticipated in our last Half Year Report that we might draw on our
increased credit facility of GBP40m([xxv]) . Following the sale of
our holding in Thomas H Lee Parallel Fund VI LP and possible
further portfolio sales, the immediacy of this drawdown has been
pushed further out though we do not rule this out during the
remainder of the current financial year. Our investment pipeline
remains more focused on investments that will continue to bring a
lower relative level of unfunded commitments ("UFCs") into the
portfolio. Accordingly the focus remains on co-investments and
secondary fund purchases, with a more muted Primary fund programme.
We do have several GPs that we are actively monitoring and it is
likely that we will make a small number of primary fund commitments
in the remainder of 2017.
In summary, we are focused on opportunistic secondary
transactions, where we feel there is upside due to the information
advantage that we get through our knowledge of many of these funds.
Our co-investment pipeline is strong and is continuing to generate
highly differentiated deal flow for the Company. Despite the huge
amounts of capital that will continue to be deployed into this
asset class over the coming years, the many pockets of opportunity
that exist in US and European regional markets continue to offer
compelling investment opportunities.
We remain positive and are delighted to see strong returns
continuing to be being delivered from both earlier and more recent
vintage investments.
Alexander Barr & Colin Burrow
Aberdeen Asset Managers Limited
26 June 2017
STRATEGIC REPORT - RESULTS
As at 31 March 2017
Financial Highlights
31 March 31 March % change
2017 2016
Total assets{A} (US$'000) 207,751 209,135 -0.7
Total equity shareholders'
funds (net assets) (US$'000) 207,751 209,135 -0.7
Share price (mid market)
(pence) 117.13 87.88 +33.3
Net asset value per Share
(pence) 152.24 133.33 +14.2
Discount to net asset
value 23.1% 34.1%
Dividend and earnings
Return per Share{B} (pence) 3.52 4.53
Dividend per Share (pence) 4.00 2.20
Ongoing charges{C}
Excluding performance
fee 1.55% 1.87%
Including performance
fee 2.47% 1.87%
{A} Total Assets less current liabilities (before
deducting prior charges).
{B} Measures the relevant earnings for the year
divided by the weighted average number of shares
in issue.
{C} Ongoing charges ratio calculated in accordance
with guidance issued by the AIC as the total of
the investment management fee and administrative
expenses divided by the average cum income NAV
throughout the year.
Performance (total return{A})
1 year 3 year 5 year
% return % return % return
Share price +38.5% +63.6% +142.6%
Net asset value +17.5% +48.1% +59.5%
Source: Aberdeen Asset Management & Morningstar
{A} Total return represents capital return plus
dividends reinvested on the dividend date.
Dividends
2017 Rate Ex dividend Record date Payment
date date
Interim dividend 2.00p 23 February 24 February 17 March
2017 2017 2017
Proposed final 2.00p 17 August 18 August 20 September
dividend 2017 2017 2017
_____
Total dividend 4.00p
_____
2016
Dividend 2.20p 18 August 19 August 16 September
2016 2016 2016
_____
Private Equity Portfolio
As at 31 March 2017
Vintage NAV
Strategy Geography Fund Year Weighting
Size
Apax 8 (A8-A (feeder)) EUR5.8
L.P. Buyout Global billion 2012 6.2%
Apax Partners is a large
global private equity
partnership investing
in growth companies across
four key sectors: Consumer,
Healthcare, Services
and Technology and Telecommunications.
The firm has a strong
operational intervention
capability and actively
uses this resource to
help improve operational
efficiencies in their
portfolio companies.
This fund will now only
call for follow-on investments.
CCMP Capital Investors US$3.6
III L.P. Buyout US billion 2013 5.0%
CCMP is a US (and London)
based private equity
business focusing on
predominantly US mid-market
buyout transactions.
They invest across four
sectors: Consumer / Retail,
Industrial, Healthcare
and Energy. The fund
is currently in its investment
period.
Coller International US$4.8
Partners V L.P. Secondaries Global billion 2006 1.1%
Coller Capital is a leading
global investor in the
private equity secondary
market where they seek
to make investments in
both Limited Partnership
interests and portfolios
of private companies.
Coller have also bought
listed private equity
funds at deep discounts
to NAV. This fund was
originally selected for
the portfolio to provide
the Company with vintage
year diversification
and a degree of j-curve
mitigation. The fund
has completed its investment
period but continues
to make follow on investments.
CVC Capital Partners US$3.2
Asia Pacific IV L.P. Buyout Asia billion 2013 1.6%
CVC Asia is one of the
more established private
equity partnerships in
the Asia-Pacific region.
Founded in 1999, CVC
Asia has now raised four
funds. This, their fourth
fund, will invest in
15-20 control or significant
minority positions across
the Asian region, equally
split between South East
Asia, China, Japan, Korea,
and other regional markets.
The fund is currently
in its investment period.
Exponent Private Equity Buyout US$1
Partners III L.P. & Growth UK billion 2015 3.2%
Exponent is a London
based GP, focusing on
UK upper mid-market deals
with an enterprise value
("EV") of GBP75m to GBP300m.
Most of its transactions
will involve buying UK
domiciled businesses,
though such is the EV
range, many of these
businesses could have
significant overseas
elements of manufacturing
and/or sales. The fund
is currently in its investment
period.
FFL Parallel Fund IV US$1.5
L.P. Buyout US billion 2014 1.9%
FFL was established in
1997 to undertake buyout
and growth investments
in US-middle market companies
incorporating top down
macro analysis and industry
themes within their four
core sectors: Business
Services, Consumer, Financial
Services and Healthcare.
The fund is currently
in its investment period.
Goldman Sachs Capital US$20.3
Partners VI L.P. Buyout Global billion 2006 2.0%
Goldman Sachs Capital
Partners make private
equity investments globally
across all market capitalisations.
This fund did not focus
on any particular sector
and invested in buy-outs,
minority stakes, listed
and unlisted companies
and across a variety
of industries. It also
allocated a proportion
of the portfolio to stressed
and distressed opportunities.
The fund has completed
its investment period
and remains in distribution
mode.
Gores Capital Partners GBP2.0
III L.P. Buyout Global billion 2009 2.0%
Gores is a Los Angeles
based global private
equity business which
invests in both mature
and growing businesses.
Its approach combines
experienced merger and
acquisition transaction
capability with a strong
operational angle. It
aims to improve the operating
performance of its portfolio
companies, many of which
are mature or have encountered
growth problems. It typically
sells its investments
to strategic buyers once
the businesses have regained
a sound footing. This
fund has completed its
investment period and
remains in distribution
mode.
HIG Bayside Debt & LBO US$3.0
Fund II L.P. Distressed US billion 2008 5.8%
HIG Capital is a global
private equity firm with
a number of distinct
businesses, including
Bayside Capital which
invests across several
segments of the primary
and secondary debt capital
markets. Bayside focuses
upon three types of transactions:
1) Debt-for-control investments
in companies' debt obligations
with the intention to
take control; 2) Leveraged
buy-outs of underperforming,
stressed or distressed
companies; and 3) Non-control
distressed debt opportunistic
investments. The fund's
investment period finished
in May 2014 and the fund
is now in divestment
mode.
Buyout EUR300
Latour Capital II & Growth France million 2015 0.9%
Latour Capital is a Paris-based
private equity firm operating
in the small/lower mid-market
in France and neighbouring
French-speaking countries.
It has a strong focus
on business services
and companies that are
either undermanaged or
have a specific competitive
advantage. Investments
are typically in the
Enterprise Value range
of EUR30m-EUR200m. This
fund is currently in
its investment period.
Lion Capital Fund III Europe EUR1.5
L.P. Buyout & US billion 2010 5.1%
Lion Capital is a buyout
manager focused on the
consumer sector, with
a historical bias to
Europe although it has
also invested in the
US. We committed to Lion
in order to provide greater
exposure to an eventual
European consumer recovery,
and at a time of competitive
European transaction
valuations. The fund
is now effectively fully
invested and is now in
divestment mode.
Japan,
Longreach Capital Partners North US$750
Ireland 1, L.P. Buyout Asia million 2006 1.9%
Longreach is based in
Hong Kong and invests
in Northern Asia with
a particular focus on
Japan. Its core strategy
is to buy non-core businesses
from Japanese conglomerates
before selling them subsequently
as operationally improved
businesses. It also looks
at investment opportunities
elsewhere in the region
and not necessarily with
Japan connections. The
fund is now past its
investment period, in
an approved formal extension
period and is actively
seeking to divest its
remaining holdings.
Japan,
Longreach Capital Partners North US$220
2 - USD, L.P. Buyout Asia million 2012 4.4%
Longreach is based in
Hong Kong and invests
in Northern Asia with
a particular focus on
Japan. Its core strategy
is to buy non-core businesses
from Japanese conglomerates
before selling them subsequently
as operationally improved
businesses. It also looks
at investment opportunities
elsewhere in the region
and not necessarily with
Japan connections. The
fund is currently at
the end of its investment
period.
MatlinPatterson Global
Opportunities Partners US$5.0
III L.P. Distressed Global billion 2007 3.4%
MatlinPatterson is a
"distressed for control"
manager investing on
a global basis. The fund
invested in companies
in distressed situations
with the aim of controlling
the financial and operational
restructuring of the
company, and also took
minority positions in
stressed and distressed
situations. The fund
has completed its investment
period although it is
still calling capital
for follow on investments.
MML Capital Partners Europe EUR382
Fund VI L.P. Buyout & US million 2014 3.0%
MML Capital operates
in an attractive niche
within the lower mid-market
in the UK, US and France.
It has a flexible approach,
partnering with management
teams often on a minority
basis. It uses creative
structuring using junior
debt instruments providing
downside protection whilst
ensuring potential for
strong equity upside
through significant equity
stakes. The fund is currently
in its investment period.
Montagu V L.P. Buyout Europe EUR2.75 2015 -
& Growth billion
Montagu is a prominent
European manager focusing
on growth and buyout
deals in the UK, France,
Benelux, DACH, Nordics
and Poland. Their strategy
is to back mid-size market
leading businesses, often
in more defensive sectors.
It has a proven, long-term
origination model based
on relationships which
frequently makes them
management's preferred
bidder. The fund is currently
in its investment period
and has made its first
investments.
MTS Health Investors $365
IV L.P. Buyout US million 2016 0.9%
MTS Health Partners is
a private equity firm
based out of New York
focused on small buyouts
in the healthcare services
arena.
Buyout EUR275
Nazca Fund IV FCR & Growth Spain million 2016 0.8%
Nazca IV is a EUR275m
fund focused on the Spanish
lower mid-market. Nazca's
vast networks and strong
reputation has allowed
the company to unlock
investment opportunities
in family-owned businesses
with limited or no competition
in the past.
Northzone Ventures VI Venture EUR130.0
L.P. capital Nordics million 2010 3.1%
Northzone primarily invests
in technology companies
either in the Nordic
region or with strong
Nordic components that
have global potential.
The management team looks
for opportunities arising
from major market transformation.
It particularly concentrates
on consumer focused internet
services, new delivery
platforms and network
infrastructure. The fund
is now in divestment
mode and will now only
call capital to fund
follow-on investments.
Northzone Ventures VIII Venture EUR350
L.P. capital Nordics million 2016 1.0%
Northzone VIII will focus
on early stage and expansion
stage investments in
technology companies
in the Nordics, London,
Berlin and New York.
Oaktree OCM Opportunities Distressed US$10.9
Fund VIIb L.P. debt Global billion 2007 0.6%
Oaktree is a distressed
debt manager and focuses
on acquiring debt securities
at discounted prices
during stressed and distressed
cycles. The manager is
capable of taking control
and driving the financial
and operational restructuring
if it does not feel that
it is getting the right
value from a transaction.
The fund has now completed
its investment period
and is in active divestment
mode.
Pangaea Two Parallel US$910
L.P. Growth Global million 2011 1.8%
The manager of this fund
is Cartesian Capital,
which was founded in
2006 by Peter Yu and
the former senior management
team from AIG Capital
Partners. The firm is
a global, opportunistic
growth capital investor,
with a focus on emerging
markets. This fund is
still in its investment
period.
Pine Brook Capital Partners US$1.15
L.P. Growth Global billion 2007 3.0%
Pine Brook is a manager
focusing on mid-to-large-cap
growth equity investments
in the Energy and Financial
Services sectors. The
fund's strategy was to
invest ahead of current
industry practices and
trends and to then take
advantage of under-served
markets. It is a differentiated
model in as much as it
is willing to invest
in start-up entities
albeit with established
management teams. The
fund has now completed
its investment period
and is in active divestment
mode; however, it will
still make selective
follow-on equity injections
to underlying businesses.
US$3.2
Resolute Fund III L.P. Specialist US billion 2013 4.6%
Resolute Fund III is
managed by The Jordan
Company, a US mid-market
private equity business.
Its investment focus
covers a wide array of
industries including
Industrial Products and
Services, Energy, Chemical,
Healthcare and Financial
Services. It aims to
invest in companies with
an enterprise value of
between $100m and $2bn
and help drive growth
via operational improvements.
The Company committed
to this Fund in 2014
and it is within its
investment period.
Venture US$510
RHO Ventures VI L.P. capital US million 2008 4.3%
RHO Ventures takes minority
positions in start-up
entities, principally
in the Technology and
Life Sciences sectors.
The manager takes a top-down
view as to which sectors
have the most favourable
conditions and has taken
a pragmatic approach
to changing investment
focus. The fund has now
completed its investment
period and, although
it is still making follow
on investments, will
divest where appropriate.
EUR808
Sagard 3 FCPI Buyout France million 2013 2.4%
Sagard is a French mid-market
investor based in Paris.
The experienced team
focuses on selecting
strong, profitable, well
established French based
firms across several
industry sectors that
can be aggressively developed
through strong organic
/ inorganic growth, margin
improvements and more
efficient use of capital.
Silver Lake Partners Buyout US$9.4
III L.P. & Growth Global billion 2007 4.4%
Silver Lake is a prominent
large cap technology
investor. The firm invests
globally in established,
cash-flow generative
businesses which are
leaders in their respective
industries. Silver Lake
acts as a partner to
management teams, investing
with experienced participants
to take advantage of
opportunities in technology
and technology-enabled
industries. The fund
has now completed its
investment period but
can still call for capital
to fund follow on investments.
StepStone International EUR732
Investors III L.P. Secondaries Europe million 2006 1.6%
StepStone is a global
private markets firm
which took over the management
of this fund from Greenpark
Capital in 2013. Greenpark's
focus had been on purchasing
limited partnership interests
in private equity funds
on the secondary market
with a focus on Europe.
The holding in this fund
was originally acquired
by the Company to provide
vintage diversification
and some j-curve mitigation.
The fund has now completed
its investment period,
but continues to make
follow on investments
(as capital calls are
made from underlying
funds).
Summa Equity Fund 1 (No.2) SEK 4.5
AB Buyout Sweden billion 2016 1.0%
Summa is a newly established
Nordic firm that will
focus on lower mid-market
businesses with leading
niche market positions.
The investments will
tend to be focused around
sectors that are fuelled
by 'megatrends'.
Venture US$365
Tenaya Capital V L.P. capital US million 2007 3.6%
The manager co-invests
in the mid to late stage
rounds of venture financing
of revenue positive,
privately held technology
companies alongside many
of the top-tier venture
capital firms in the
US. Its aim is to diversify
across the technology
spectrum, and to actively
manage those companies
in which it is invested.
The fund has now completed
its investment period.
Venture US$200
Tenaya Capital VI L.P. capital US million 2012 2.0%
The manager co-invests
in the mid to late stage
rounds of venture financing
of revenue positive,
privately held technology
companies alongside many
of the top-tier venture
capital firms in the
US. Its aim is to diversify
across the technology
spectrum, and to actively
manage those companies
in which it is invested.
This fund is currently
in its investment period.
Buyout US$823
Thoma Bravo Fund IX L.P. & Growth US million 2008 0.5%
Thoma Bravo is a long-established
US equity private equity
business with a focus
on investing in Software,
Services and other Consolidating
Industries. It does this
by identifying talented
management teams operating
in a niche industry segment
upon which additional
acquisitions can be added,
in combination with organic
growth. The fund has
completed its investment
period and is in divestment
mode.
EUR215
Wisequity IV Buyout Italy million 2016 1.8%
Milan-based Wise is an
established lower mid-market
Italian GP. It invests
in Italian-headquartered
global market leaders
with scope for further
rapid growth both organically
and through acquisitions.
The firm looks to take
a hands-on approach to
value creation working
closely with management
teams, taking on short
term roles within management
if required. The fund
is at the beginning of
its investment period.
Investment Portfolio - Schedule of Investments
As at 31 March 2017
Total Investment
Investments Commitments called/cost Fair Value % of
{B}
Private Equity Funds US$'000 US$'000 US$'000 NAV
Portfolio {A}
----------------------------- ------------ ------------ ----------- -----
Apax 8 (A8-A(feeder))
L.P. EUR 10,000 10,274 12,906 6.2
CCMP Capital Investors
III L.P. 15,000 7,453 10,413 5.0
Coller International
Partners V L.P. {B} 15,000 - 2,279 1.1
CVC Capital Partners
Asia Pacific IV L.P. 10,000 2,601 3,265 1.6
Exponent Private Equity
Partners III L.P. GBP10,000 6,350 6,608 3.2
FFL Parallel Fund IV
L.P. 10,000 3,726 3,942 1.9
Goldman Sachs Capital
Partners VI L.P. 15,000 5,086 4,200 2.0
Gores Capital Partners
III L.P. 10,000 5,062 4,165 2.0
HIG Bayside Debt & LBO
Fund II L.P. 15,000 9,005 11,951 5.8
Latour Capital II EUR 10,000 1,769 1,782 0.9
Lion Capital Fund III
L.P. EUR 10,000 8,558 10,625 5.1
Longreach Capital Partners
Ireland 1, L.P. 7,425 8,213 3,938 1.9
Longreach Capital Partners
2 - USD, L.P. 7,500 4,688 9,076 4.4
MatlinPatterson Global
Opportunities Partners
III L.P. 10,000 7,350 7,018 3.4
MML Capital Partners
Fund VI L.P. EUR 13,000 5,924 6,232 3.0
Montagu V L.P. EUR 8,000 - 17 -
MTS Health Investors
IV L.P. 15,000 1,846 1,846 0.9
Nazca Fund IV FCR(D) EUR 10,000 1,947 1,636 0.8
Northzone Ventures VI
L.P. EUR 10,000 5,660 6,475 3.1
Northzone Ventures VIII
L.P. EUR 12,000 1,832 2,061 1.0
Oaktree OCM Opportunities
Fund VIIb L.P. {B} 15,000 - 1,205 0.6
Pangaea Two Parallel
L.P. 5,000 2,690 3,732 1.8
Pine Brook Capital Partners
L.P. 10,000 5,992 6,300 3.0
Resolute Fund III L.P. 15,000 6,653 9,640 4.6
RHO Ventures VI L.P. 10,000 9,466 9,012 4.3
Sagard 3 FCPI EUR 10,000 4,373 5,047 2.4
Silver Lake Partners
III L.P. 15,000 5,884 9,114 4.4
StepStone International
Investors III L.P. EUR 14,600 6,477 3,359 1.6
Summa Equity Fund 1
(No.2) AB SEK 145,500 1,777 1,998 1.0
Tenaya Capital V L.P. 12,500 7,143 7,576 3.6
Tenaya Capital VI L.P. 5,000 3,738 4,187 2.0
Thoma Bravo IX Fund
L.P. 10,000 704 1,041 0.5
Wisequity IV EUR 10,000 3,781 3,762 1.8
----------------------------- ------------ ------------ ----------- -----
156,022 176,408 84.9
Co-investments
----------------------------- ------------ ------------ ----------- -----
CCMP Co-Invest III A
L.P. 1,500 1,500 1,500 0.7
Color Wind S.p.A. EUR 2,000 2,148 2,139 1.0
CSP Ergon Investment
L.P. 2,500 2,087 2,087 1.0
Diamond Hill L.P. 3,000 3,000 3,000 1.4
Finvest L.P. GBP2,900 2,644 2,264 1.1
Hg Capital 5 Co-Invest
1 L.P. GBP3,000 4,638 2,829 1.4
Lion Seneca Cayman 3
L.P. EUR 810 988 985 0.5
LVM LP Co-Investment
L.P. 1,500 625 2,800 1.4
SLP Denali Co-Invest
L.P. 2,080 2,074 3,792 1.8
----------------------------- ------------ ------------ ----------- -----
19,704 21,396 10.3
----------------------------- ------------ ------------ ----------- -----
Total investments 175,726 197,804 95.2
----------------------------- ------------ ------------ ----------- -----
Fair Value % of
US$'000 NAV
------------------------------- ----------- ------
Aberdeen Liquidity Funds
Sterling Fund 234 0.1
US Dollar Fund 1,803 0.9
--------------------------------- ----------- ------
2,037 1.0
Cash at bank 12,295 5.9
--------------------------------- ----------- ------
Cash and cash equivalents
{D} 14,332 6.9
Other assets less liabilities (4,385) (2.1)
--------------------------------- ----------- ------
Net current assets 9,947 4.8
--------------------------------- ----------- ------
Net assets 207,751 100.0
--------------------------------- ----------- ------
({A}) All commitments are in US$ unless otherwise
stated.
({B}) Investments called/cost represents commitments
drawn down less net distributions. Where net distributions
exceed drawdowns a nil amount is shown.
({C}) Held via a 100%
owned subsidiary.
({D}) Represents sum of fixed term deposits, Aberdeen liquidity
funds and cash.
Co-investments
Original Acquisition
Commitment Date Sponsor GP Domicile
(m)
----------------- ----------- ------------ ------------------ ------------
Achilles $4.4 05/10/2015 HgCapital Global
----------------- ----------- ------------ ------------------ ------------
Achilles is a UK-headquartered business founded
in 1990 which has developed to become a world leader
in collaborative supply chain networks. The company
uses SaaS-based technology to allow multinationals
to manage risk in their supply chains.
------------------------------------------------------------------ ----------
Alain Afflelou EUR 0.8 12/07/2012 Lion Capital Europe
----------------- ----------- ------------ ------------------ ------------
Alain Afflelou is the third-largest branded optical
chain in Europe, selling optical lenses, optical
frames, sunglasses, and contact lenses. The company
is strong in France but also has a presence in
countries including Spain, Portugal and Belgium.
The company is able to generate revenue from a
diverse range of sources given its franchise model.
------------------------------------------------------------------ ----------
Imprima EUR 3.0 11/11/2016 Wisequity Italy
----------------- ----------- ------------ ------------------ ------------
Project Color Wind is a consolidation play in the
European textile converting industry, significantly
upgrading technology at an operational level and
promoting international expansion. In October 2016,
Wisequity IV completed the acquisition of KBC Fashion
GmbH &Co., a EUR60m turnover German textile company,
and in November the Wise signed a definitive agreement
to buy the Italian group Guarisco Class and its
subsidiaries.
------------------------------------------------------------------ ----------
Dell $1.2 22/10/2013 Silver Lake Global
Partners
----------------- ----------- ------------ ------------------ ------------
Dell is a leading global IT infrastructure vendor
with an increasingly diversified product offering
of end-user computing devices and enterprise solutions.
Dell was taken private by Michael Dell and Silver
Lake to accelerate their solutions business though
they remain a significant global PC manufacturer.
------------------------------------------------------------------ ----------
Hampshire Trust GBP2.9 18/02/2016 Alchemy Partners Europe
Bank
----------------- ----------- ------------ ------------------ ------------
Headquartered in London, Hampshire Trust is a specialist
lender targeting the UK SME market using an efficient
deposit-funding base and a scalable technology
platform and banking system.
------------------------------------------------------------------ ----------
The Hillman $1.5 21/07/2014 CCMP Capital North
Group Investors America
----------------- ----------- ------------ ------------------ ------------
Operating primarily in the US, Hillman is a leading
value-added distributor of fasteners, key duplication
systems, engraved tags and related hardware items
to over 26,000 retail customers. The company sells
to home improvement centres, as well as mass merchants,
hardware stores and pet supply stores.
------------------------------------------------------------------ ----------
Indecomm Global $2.5 31/03/2017 Capital Square Singapore
Services Partners
Indecomm is a cross-border IT services and outsourcing
company headquartered in Singapore and Bangalore.
------------------------------------------------------------------ ----------
Source Photonics $3.0 12/12/2016 Redview Capital China
----------------- ----------- ------------ ------------------ ------------
Source Photonics is a global provider of communications
and data connectivity components and modules in
next-generation data centers, mobile and fixed-line
networks.
------------------------------------------------------------------ ----------
Via Mechanics $1.5 22/10/2013 Longreach Capital Asia
Partners
----------------- ----------- ------------ ------------------ ------------
Headquartered in Japan, with operations in China,
Via Mechanics ("VIA") is a leading manufacturer
of micro-drilling machines for printed circuit
boards (PCBs). The business was acquired from Hitachi.
VIA is one of very few global players with ultrafine
and high precision drilling technology that can
meet the requirements for the latest smart phones
and other mobile devices.
------------------------------------------------------------------
TOP TEN HOLDINGS
As at 31 March 2017
Fair
Book Market NAV
Cost Value Weighting
Holding Strategy US$m US$m %
Apax 8 (A8-A(feeder))
L.P. Buyout 10.3 12.9 6.2
HIG Bayside Debt
& LBO Fund II L.P. Distressed 9.0 12.0 5.8
Lion Capital Fund
III L.P. Buyout 8.6 10.6 5.1
CCMP Capital Investors
III L.P. Buyout 7.5 10.4 5.0
Resolute Fund III
L.P. Specialist 6.7 9.6 4.6
Silver Lake Partners Buyout &
III L.P. Growth 5.9 9.1 4.4
Longreach Capital
Partners 2 - USD,
L.P. Buyout 4.7 9.1 4.4
RHO Ventures VI Venture
L.P. capital 9.5 9.0 4.3
Tenaya Capital V Venture
L.P. capital 7.1 7.6 3.6
MatlinPatterson
Global Opportunities
Partners III L.P. Distressed 7.4 7.0 3.4
_____ _____ _____
Top 10 Holdings 76.7 97.3 46.8
_____ _____ _____
EXTRACTS FROM THE DIRECTORS' REPORT
The Directors present their report and the audited financial
statements for the year ended 31 March 2017.
Results and Dividend
Details of the Company's results are shown above. During the
year the Company adopted a new distribution policy and in the
absence of unforeseen circumstances, the Company expects to pay
minimum total dividends of 4.0p per Share per annum (2016 - one
dividend of 2.2p), commencing with two dividends of 2.0p per Share
relating to the financial year to 31 March 2017. An interim
dividend of 2.0p was paid on 17 March 2017 (2016: n/a). The
Directors are now recommending the payment of a final dividend of
2.0p per Share in respect of the year ended 31 March 2017 which,
subject to shareholder approval at the AGM on 15 September 2017,
will be payable on 20 September 2017 to shareholders on the
register on 18 August 2017. In the absence of unforeseen
circumstances, the Company expects to pay at least the same level
of dividends for the financial year to 31 March 2018.
Status
The Company is a Guernsey authorised closed-ended investment
company listed on the London Stock Exchange. The Company was
incorporated on 5 January 2007 in Guernsey, Channel Islands with
registered number 46192. Trading in the Company's Shares commenced
on 9 July 2007.
The Company is a member of the Association of Investment
Companies ("AIC").
Individual Savings Accounts
The Company intends to manage its affairs so as to be a
qualifying investment for inclusion in the stocks and shares
component of an Individual Savings Account ('ISA') and it is the
Directors' intention that the Company should continue to be a
qualifying investment.
The Company currently conducts its affairs so that its
securities can be recommended by financial advisers to ordinary
retail investors in accordance with the Financial Conduct
Authority's rules in relation to non-mainstream investment products
and intends to continue to do so for the foreseeable future. The
Company's securities are excluded from the Financial Conduct
Authority's restrictions which apply to non-mainstream pooled
investments (NMPIs) because the Company would qualify as an
investment trust if it were incorporated in the UK.
Share Capital
As at 31 March 2017 there were 109,131,199 Shares in issue.
During the year no Shares were issued and no Shares were purchased
in the market for cancellation or treasury.
Voting Rights
Each Share holds one voting right and shareholders are entitled
to vote on all resolutions which are proposed at general meetings
of the Company. The Shares carry a right to receive dividends. On a
winding up or other return of capital, after meeting the
liabilities of the Company, the surplus assets will be paid to
shareholders in proportion to their shareholdings. There are no
restrictions on the transfer of Shares in the Company other than
certain restrictions which may be applied from time to time by
law.
Management Agreement
Following a review, a revision of the management fee
arrangements was agreed during the year by the Company and the
Manager. From 1 October 2016, the Manager has been paid a monthly
fee of 1/12 of 0.9% per annum of the NAV of the Company after
deducting liabilities but excluding long-term structured debt (the
"Fee"). In the period up to and including 30 September 2016 the
Manager was entitled to a monthly fee of 1/12 of 1.5% of the NAV of
the Company before deduction of any performance fee but after
deducting liabilities (excluding from such liabilities the amount
of any long-term structured bank debt approved by the Board) and
deducting cash at bank, short-term deposits and the value of
holdings in money market funds; plus 1/12 of 0.75% of the value of
all cash at bank, short-term deposits and holdings in money market
funds.
The Fee is calculated and accrued as at the last business day of
each month and is paid monthly in arrears. Arrangements relating to
the conditions under which a performance fee may be payable by the
Company were unchanged following the review.
The performance fee incorporates a three year 8% per annum
compound return hurdle rate. In order to earn a performance fee all
of the following criteria must be met in a performance fee
year:
- The NAV must have risen by more than 8% in the performance fee year;
- The NAV must exceed the high watermark (at which a fee was last paid); and,
- The NAV must have risen by more than 8% per annum compound
over the previous three performance fee years.
The NAV is adjusted to add back the payment of dividends during
the year. The performance fee itself is calculated at 10% of the
NAV gain above the hurdle rate in the latest performance fee year.
The total fees payable to the Manager in any performance period are
capped at 3% of NAV. The NAV high watermark in relation to any
future performance fee is 152.24p per Share.
The Directors review the terms of the Agreement on a regular
basis and have confirmed that, owing to the investment skills,
experience and commitment of the Manager, in their opinion the
continuing appointment of AAML, on the terms agreed, is in the
interests of shareholders as a whole.
The Agreement will continue in force until the Company is
wound-up unless and until terminated earlier by either party giving
to the other not less than 12 months' written notice. In certain
circumstances the Agreement may be terminated forthwith by notice
in writing by a party to the other party, including where key
persons depart from the Manager or the Manager is no longer
authorised to carry on investment business in the United
Kingdom.
The Agreement contains indemnities from the Company in favour of
the Manager and its associates which are restricted to exclude
matters arising by reason of the negligence, wilful default, fraud
or breach of the Agreement of or by the Manager or any of its
associates. Furthermore, neither the Manager nor any of its
associates will be liable to the Company for any loss suffered by
the Company in connection with the Agreement, unless the Company
has suffered such loss due to the negligence, wilful default, fraud
or breach of the Agreement of or by the Manager or any of its
associates.
Risk Management
Details of the financial risk management policies and objectives
relative to the use of financial instruments by the Company are set
out in note 20 to the financial statements.
Substantial Interests
The Board has been advised that the following shareholders owned
3% or more of the issued Share capital of the Company at 31 March
2017:
Shareholder Number of Shares held % held
ReAssure Limited 28,470,818 26.1
Hampshire County Council Pension Fund 21,500,000 19.7
Merseyside Pension Fund 18,695,076 17.1
Old Mutual Global Investors 4,705,978 4.3
Seneca Investment Managers 3,650,000 3.3
Subsequent to the year-end the Company has been advised that (i)
Hampshire County Council Pension Fund no longer holds Shares in the
Company; (ii) Old Mutual Global Investors no longer holds Shares in
the Company; and, (iii) Asset Value Investors is interested in
27,489,407 Shares (25.2%).
Corporate Governance
The Company is committed to high standards of corporate
governance. The Board is accountable to the Company's shareholders
for good governance and this statement describes how the Company
applies the principles identified in the UK Corporate Governance
Code ("UK Code") which is available on the Financial Reporting
Council's website: frc.org.uk.
The Board has also considered the principles and recommendations
of the AIC Code of Corporate Governance for Guernsey Domiciled
Investment Companies which was published in February 2015 ("AIC
Guernsey Code") by reference to the AIC Corporate Governance Guide
for Investment Companies ("AIC Guide"). The AIC Guernsey Code, as
explained by the AIC Guide, addresses all the principles set out in
the UK Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company. The AIC Guernsey Code also explains that
Guernsey-domiciled investment companies which report against the
AIC Guernsey Code are not required to report separately against the
Guernsey Financial Services Commission ("GFSC") Finance Sector Code
of Corporate Governance ("Guernsey Code").
The Board considers that reporting against the principles and
recommendations of the AIC Guernsey Code, and by reference to the
AIC Guide (which incorporates the UK Code), will provide better
information to shareholders.
The Company has complied with the recommendations of the AIC
Guernsey Code and the relevant provisions of the UK Corporate
Governance Code, except as set out below.
The UK Corporate Governance Code includes provisions relating
to:
- the role of the chief executive;
- the appointment of a senior independent director;
- executive directors' remuneration; and,
- and the need for an internal audit function.
For the reasons set out in the AIC Code, and as explained in the
UK Code, the Board considers that these provisions are not relevant
to the position of the Company, being an externally-managed
investment company. In particular, all of the Company's day-to-day
management and administrative functions are outsourced to third
parties. As a result, the Company has no executive Directors,
employees or internal operations. The Company has therefore not
reported further in respect of these provisions. The full text of
the Company's Corporate Governance Statement can be found on the
Company's website, aberdeenprivateequity.co.uk.
Directors
The current Directors are Messrs H Myles, D Copperwaite, P
Hebson and D Staples. Mr Copperwaite will retire by rotation at the
Annual General Meeting and, being eligible, will offer himself for
re-election.
The Directors submit themselves for re-election every three
years. All Directors are considered to be free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement. Mr Staples was, until
2003, a partner of PwC LLP in the UK ("PwC"). The Board notes that
PwC is a separate partnership to PwC CI LLP which acts as auditor
to the Company and Mr Staples has no financial or other interest in
PwC CI LLP. In view of this the Directors are completely satisfied
that Mr Staples is independent notwithstanding the fact that he is
a former partner of PwC. Mr Staples is also a non executive
director of the General Partner of Apax 8 (A8-A (feeder)) LP ("Apax
8") in which the Company has an investment. In accordance with the
Company's policy on the management of possible conflicts of
interest, Mr Staples did not take any part in the Board's
consideration of the decision to invest in Apax 8 and Mr Staples
does not participate in any specific Board discussions relating to
the on-going investment in Apax 8.
Each Director has the requisite high level and range of business
and financial experience which enables the Board to provide clear
and effective leadership and proper stewardship of the Company. The
Board considers that there is a balance of skills and experience
within the Board relevant to the leadership and direction of the
Company and that all Directors contribute effectively.
The Board is committed to improving the opportunities for people
from a diverse range of backgrounds to understand and prepare for
membership of corporate boards. During the period under review an
apprentice was appointed from Board Apprentice Limited, which is a
not-for-profit organisation dedicated to creating a wider pool of
board-ready candidates. For a period of one year, the Board
appointed Katie Hutchins as a Board apprentice, and in that
capacity, she attended all Board and Committee meetings as an
observer for educational purposes. Ms Hutchins received no expenses
or remuneration from the Company and her twelve month term of
appointment came to an end on 1 May 2016.
The Board meets quarterly, with ad hoc meetings in between to
deal with issues as they arise. Mr Hebson is a UK resident. In
order to be eligible to attend a Board meeting a UK resident
Director must be situated outside the UK at the time of the
meeting. The Directors attended the following meetings during the
year ended 31 March 2017 (with their eligibility to attend the
relevant meetings in brackets):
Scheduled Other Board Audit AGM Other
Board Com
H Myles 4 (4) 3 (3) 4 (4) 1 (1) 4 (4)
D Staples 4 (4) 3 (3) 4 (4) 1 (1) 4 (4)
D Copperwaite 4 (4) 3 (3) 3 (4) 1 (1) 4 (4)
P Hebson 4 (4) 3 (1)* 4 (3)* 1 (1) 4 (4)
* Mr Hebson attended a number of meetings from the UK but did
not count in the quorum of those meetings
The Board has a schedule of matters reserved to it for decision
and the requirement for Board approval on these matters is
communicated directly to the senior staff of the Manager. Such
matters include strategy, gearing, treasury and dividend policy.
Full and timely information is provided to the Board to enable the
Directors to function effectively and to discharge their
responsibilities. The Board also reviews the financial statements,
performance and revenue budgets.
Board Committees
The Directors have appointed a number of Committees as set out
below. Copies of their terms of reference, which clearly define the
responsibilities and duties of each Committee, are available on the
website. The terms of reference of each of the Committees are
reviewed and re-assessed by the Board for their adequacy on an
ongoing basis.
Audit Committee
The Audit Committee Report is on pages 43 and 44 of the Annual
Report.
Management Engagement Committee
The Management Engagement Committee comprises all of the
Directors and is chaired by Mr Copperwaite. The Committee reviews
the performance of the Manager and the investment management and
secretarial agreements and compliance with their terms. The
Committee also reviews the engagement terms of all other material
third party service providers. The terms and conditions of the
Manager's appointment, including an evaluation of fees, are
reviewed by the Committee on an annual basis. The Committee
believes that the continuing appointment of the Manager on the
terms agreed is in the interests of shareholders as a whole.
Nomination Committee
All appointments to the Board of Directors are considered by the
Nomination Committee which comprises the entire Board and is
chaired by Mr Myles. When searching for new independent non
executive Directors, candidates are identified against the
requirements of the Company's business and the need to have a
balanced Board. Every Director is required to receive appropriate
training as deemed necessary. A Director appointed during the year
is required, under the provisions of the Company's Articles of
Incorporation, to retire and seek election by shareholders at the
next Annual General Meeting. The Articles of Incorporation require
that one third of the Directors retire by rotation at each Annual
General Meeting. The Board's policy is that Directors who have
served more than nine years will submit themselves for annual
re-election on a voluntary basis. The Board's overriding priority
in appointing new Directors to the Board is to identify the
candidate with the best range of skills and experience to
complement existing Directors. The Board recognises the benefits of
diversity in the composition of the Board. When Board positions
become available as a result of retirement or resignation, the
Company will ensure that a diverse group of candidates is
considered.
The Company has put in place the necessary procedures to
conduct, on an annual basis, an appraisal of the Chairman of the
Board, Directors' individual self-evaluation and an evaluation of
the Board as a whole. Following formal performance evaluations, it
was concluded that the performance of each Director, including
those seeking re-election continues to be effective and
demonstrates commitment to the role. Accordingly, the Board has no
hesitation in recommending the re-election of Mr Copperwaite at the
forthcoming AGM.
Remuneration Committee
A Remuneration Committee has been established comprising the
entire Board and which is chaired by Mr Hebson. The remuneration of
the Directors has been set in order to attract and retain
individuals of a calibre appropriate to the future development of
the Company. The Company's policy on Directors' remuneration,
together with details of the remuneration of each Director, is
detailed in the Directors' Remuneration Report on pages 45 to 47 of
the Annual Report.
Management of Conflicts of Interests
The Board has a procedure in place to deal with a situation
where a Director has a conflict of interest. As part of this
process, the Directors are required to disclose other positions
held and all other conflict situations that may need to be
authorised either in relation to the Director concerned or his or
her connected persons. The Board considers each Director's
situation and decides whether to approve any conflict, taking into
consideration what is in the best interests of the Company and
whether the Director's ability to act in accordance with his or her
wider duties is affected. Each Director is required to notify the
Company Secretary of any potential or actual conflict situations
that will need authorising by the Board. Authorisations given by
the Board are reviewed at each Board meeting.
The Company has a policy of conducting its business in an honest
and ethical manner. The Company takes a zero tolerance approach to
bribery and corruption and has procedures in place that are
proportionate to the Company's circumstances to prevent them. The
Aberdeen Group also adopts a group-wide zero tolerance approach and
has its own detailed policy and procedures in place to prevent
bribery and corruption. Copies of the Aberdeen Group's anti-bribery
and corruption policies are available on its website
aberdeen-asset.com.
Internal Control
The Board is ultimately responsible for the Company's system of
internal control and risk management and for reviewing its
effectiveness. The Board confirms that as at 31 March 2017 there
was an ongoing process for identifying, evaluating and managing the
Company's significant business and operational risks, that it was
in place for the year ended 31 March 2017 and up to the date of
approval of the Annual Report, that it is regularly reviewed by the
Board and accords with the internal control guidance for directors
in the UK Code.
The design, implementation and maintenance of controls and
procedures to safeguard the assets of the Company and to manage its
affairs properly extends to operational and compliance controls and
risk management. The Directors have delegated the investment
management of the Company's assets to the Manager within overall
guidelines, and this embraces implementation of the system of
internal control, including financial, operational and compliance
controls and risk management. Internal control systems are
monitored and supported by the Manager's internal audit function
which undertakes periodic examination of business processes,
including compliance with the terms of the management agreement,
and ensures that recommendations to improve controls are
implemented.
Risks are identified and documented through a risk management
framework by each function within the Manager's activities. Risk is
considered in the context of the FRC and the UK Code guidance, and
includes financial, regulatory, market, operational and
reputational risk. This helps the Manager's internal audit risk
assessment model identify those functions for review. Any
weaknesses identified are reported to the Board, and timetables are
agreed for implementing improvements to systems. The implementation
of any remedial action required is monitored and feedback provided
to the Board. The principal risks and uncertainties facing the
Company are identified on in the Strategic Report.
The key components designed to provide effective internal
control are outlined as follows:
- the Board and Manager have agreed clearly defined investment
criteria, specified levels of authority and exposure limits.
Reports on these issues, including performance statistics and
investment valuations, are regularly submitted to the Board;
- the Manager prepares forecasts and management accounts which
allow the Board to assess the Company's activities and review its
performance;
- the administrator is responsible for independently preparing
NAV calculations and controlling functions such as cash
payments;
- internal controls reports (ISAE3402 and AAF 01/06) are
reviewed from all key service providers;
- as a matter of course, the Manager's compliance department
continually reviews the Manager's operations; and
- written agreements are in place which specifically define the
roles and responsibilities of the Manager and other third party
service providers.
The Board has considered the need for an internal audit function
but, because of the compliance and internal control systems in
place at the Manager, has decided to place reliance on the
Manager's systems and internal audit procedures. At its meeting in
June 2017, the Audit Committee carried out an annual assessment of
internal controls for the year ended 31 March 2017 by considering
documentation from the Manager, including the internal audit and
compliance functions and taking account of events since 31 March
2017. The results of the assessment were then reported to the Board
at the next Board meeting.
The system of internal control and risk management is designed
to meet the Company's particular needs and the risks to which it is
exposed. The system of internal control and risk is designed to
manage rather than eliminate the risk of failure to achieve
business objectives and by its nature can only provide reasonable
and not absolute assurance against misstatement and loss.
Relations with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Manager and the Company's stockbroker aim to
meet larger shareholders at least annually. The Annual Report and
financial statements are widely distributed to other parties who
have an interest in the Company's performance. Shareholders and
investors may obtain up to date information on the Company through
the Manager's freephone information service and the Company's
website (aberdeenprivateequity.co.uk).
The Notice of AGM included within the Annual Report and
financial statements is sent out at least 20 working days in
advance of the meeting. All shareholders have the opportunity to
put questions to the Board or Manager, either formally at the
Company's Annual General Meeting, informally following the meeting
or in writing at any time during the year via the Company
Secretary. The Company Secretary is available to answer general
shareholder queries at any time throughout the year.
The Board recognises and supports the Manager's investor
relations programme which includes active engagement with
substantial shareholders. The Directors make themselves available
to meet substantial shareholders on an ad hoc basis. The Board
receives regular detailed reports and updates on investor relations
from the Manager.
Socially Responsible Investment Policy
The Board is aware of its duty to act in the interests of the
Company and its shareholders. The Board acknowledges that there are
risks associated with investments into privately held companies,
via Limited Partnerships ("LPs"), or direct investment, which fail
to conduct business in a responsible manner. The Directors, through
the Company's Manager, therefore encourage PE General Partners
("GPs") to adhere to best practice across the spectrum of
Environmental, Social and Corporate Governance ("ESG") issues.
The Manager considers a range of material social, environmental
and governance factors in the evaluation of investments into PE
funds and direct investments. Specifically, the investment team
considers these factors in line with the Principles for Responsible
Investment ("PRI"). Aberdeen Asset Management signed the United
Nations Principles for Responsible Investment in 2007. The guide is
now known simply as PRI, which has been specifically designed for
PE. These are used within the diligence process for new fund
investments and in the on-going monitoring of these commitments.
The Manager requests specific information on the process that a GP
uses in its own due diligence to assess the Company's potential
exposure to environmental, social, human capital and governance
risks, as well as financial factors. This helps to ensure a
holistic approach is taken to risk assessment and that these issues
are fully considered within that GP's investment approval process.
Where a particular GP lacks transparency on ESG issues, this will
be taken into account when making an investment recommendation.
Prior to recommending a commitment, the investment team also
undertake due diligence on how the General Partner approaches the
reporting of ESG issues to investors and other stakeholders, to
ensure that LPs will receive adequate disclosure of any material
risks or issues arising during a fund's life.
The Manager also requests information on how GPs address ESG
issues in their portfolio companies during their period of
ownership. Where material issues arise, the Manager will aim to
become fully involved in LP decision making where appropriate, and
will track the progress of these issues through to resolution.
Annual General Meeting
The Company's Annual General Meeting is convened for 10.30 a.m.
on 15 September 2017 at the offices of Ipes (Guernsey) Limited, 1
Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL.
Continuation of the Company
The Directors have undertaken to offer an annual opportunity to
shareholders to vote on the continuation of the Company.
Accordingly Resolution 7 will be proposed at the Annual General
Meeting convened for 15 September 2017 as an ordinary resolution
requiring a simple majority of votes cast in order for the Company
to continue its business as a closed ended investment company.
Accountability and Audit
The respective responsibilities of the Directors and the auditor
in connection with the financial statements are set out in the
Annual Report.
Independent Auditor
Our independent auditor, PricewaterhouseCoopers CI LLP ("PwC CI
LLP"), has indicated its willingness to remain in office.
Resolution 6 will be proposed as an ordinary resolution at the AGM
to re-appoint PwC CI LLP as independent auditor for the ensuing
year, and to authorise the Directors to determine their
remuneration.
Disapplication of Pre-emption Rights
Resolution 8 will be proposed as a special resolution at the AGM
to provide the Directors with an annual authority to disapply
pre-emption rights in respect of up to 10% of the Share capital
when issuing Shares and/or selling Shares from treasury. This
authority will expire at the conclusion of the AGM in 2018. Any
future issues, or sales of Shares from treasury, will only be
undertaken at a premium to the prevailing NAV per Share.
Purchase of the Company's Securities
As part of the discount control mechanisms, the Board may
consider implementing a Share buy-back (subject to the limitations
to be set out in Resolution 9 in the Notice of the Annual General
Meeting of the Company and all other applicable laws and
regulations) at each quarterly Board meeting should the Shares have
been trading at a discount to NAV of 10% or greater for more than
90 days. The Company has the authority to manage demand flows for
its Shares by purchasing up to 14.99% of the issued Share capital.
Up to 10% may be held within treasury and resold. The remainder
will be cancelled. Annual shareholder approval will be sought to
renew this authority.
Purchases of Shares will only be made through the market for
cash at prices below the prevailing NAV per Share (as last
calculated) when the Directors believe that it would be in the
interests of shareholders generally to do so. No Shares were
repurchased in the year ended 31 March 2017.
At the Annual General Meeting to be held on 15 September 2017,
Resolution 9, a special resolution, will be proposed to renew the
Directors' authority to make market purchases of the Company's
Shares in accordance with the provisions of the Listing Rules of
the Financial Services Authority. Accordingly, the Company will
seek authority to purchase up to 14.99% of the current issued Share
capital. The authority being sought shall expire at the conclusion
of the Annual General Meeting in 2018 unless such authority is
renewed prior to such time. Any Shares purchased in this way will
either be cancelled and the number of Shares will be reduced
accordingly, or the Shares will be held in treasury.
Recommendation
Your Board considers each of the AGM resolutions to be in the
best interests of the Company and its members as a whole.
Accordingly, your Board recommends that shareholders should vote in
favour of each of the resolutions to be proposed at the Annual
General Meeting, as they intend to do in respect of their own
beneficial shareholdings amounting to 108,870 Shares.
Going Concern
The Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern including reviewing the
level of the Company's assets and significant areas of financial
risk including the level of liquidity, the estimated draw down of
commitments and timing of realisations from the portfolio. Note 20
to the financial statements includes the Company's objectives,
policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and its
exposure to credit risk and liquidity risk. The Directors believe
that it is appropriate to prepare the financial statements on the
going concern basis, as explained in the Basis of Preparation
paragraph in note 2 and of the financial statements.
Accordingly, the Directors are recommending shareholders to vote
in favour of the continuation vote and, based upon initial
discussions with the larger shareholders, they believe that the
resolution to continue will be passed. Thus they continue to adopt
the going concern basis of accounting in preparing the financial
statements. Nevertheless, the Directors are making full disclosure,
as required by accounting standards, to indicate the existence of a
material uncertainty (the continuation vote referred to above),
which may cast doubt on the Company's ability to continue as a
going concern. The financial statements do not include the
adjustments that would result if the Company were unable to
continue as a going concern.
By order of the Board
David Staples
Director
Registered Office:
1 Royal Plaza, Royal Avenue
St Peter Port, Guernsey
GY1 2HL
26 June 2017
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing financial statements
for each financial year which give a true and fair view in
accordance with applicable Guernsey law and International Financial
Reporting Standards, of the state of affairs of the Company and of
the profit or loss of the Company for that year. In preparing the
financial statements, the Directors are required to:
- select suitable accounting policies and 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;
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
- assess whether the Annual Report and financial statements,
taken as a whole, is 'fair, balanced and understandable'.
The Directors confirm to the best of their knowledge that:
- they have complied with the above requirements in preparing the financial statements;
- there is no relevant audit information of which the Company's auditor is unaware.
In accordance with Disclosure Guidance and Transparency Rule
4.1.12:
The Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
- that in the opinion of the Directors, the Annual Report and
financial statements taken as a whole, is fair, balanced and
understandable and it provides the information necessary to assess
the Company's performance, business model and strategy; and
- the Strategic Report, including the Chairman's Statement and
the Manager's Review, includes a fair review of the development and
performance of the business and the position of the Company
together with a description of the principal risks and
uncertainties that the Company faces.
The Directors are responsible for keeping proper accounting
records which 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 (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Each Director confirms that, so far as he is aware, there is no
relevant audit information of which the Company's auditor is
unaware, and he has taken all the steps that he ought to have taken
as a Director in order to make himself aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information. Additionally, all important events since the year
end are properly disclosed in the financial statements.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
auditor does not involve consideration of the maintenance and
integrity of this website and, accordingly, the auditor accepts no
responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the
website. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For Aberdeen Private Equity Fund Limited
David Staples
Director
26 June 2017
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2017
Year ended Year ended
31 March 31 March 2016
2017
Notes US$'000 US$'000
Net changes in fair
value of financial assets
at fair value through
profit or loss 13 10,641 11,180
Income 4 117 78
Currency gains 45 40
Investment management
fee 5 (2,361) (2,833)
Performance fee 5 (1,887) -
Other operating expenses 6 (1,492) (1,211)
Tax incurred on distribution
income 7 (263) (142)
________ ________
Profit attributable
to equity shareholders 4,800 7,112
________ ________
Earnings per share 9
US Dollar (cents) 4.40 6.52
Sterling (pence) 3.52 4.53
________ ________
The Company does not have any income or expense
that is not included in profit for the year, and
therefore the "Profit attributable to equity shareholders"
is also the "Total comprehensive income for the
year", as defined in International Accounting Standard
1 (revised).
All items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of
the financial statements.
BALANCE SHEET
As at 31 March 2017
As at As at
31 March 31 March
2017 2016
Notes US$'000 US$'000
Non-current assets
Financial assets held at
fair value through profit
or loss 10 197,804 173,104
Current assets
Cash and cash equivalents 14,332 36,574
Other receivables 14 594 666
________ ________
14,926 37,240
________ ________
Creditors: amounts falling
due within one year
Other payables 15 (4,979) (1,050)
________ ________
Net current assets 9,947 36,190
________ ________
Creditors: amounts falling
due after more than one year
Trade and other payables 15 - (159)
________ ________
Net assets 207,751 209,135
________ ________
Share capital and reserves
Share capital 16 229,199 229,199
Revenue reserves 17 (21,448) (20,064)
________ ________
Equity shareholders' funds 207,751 209,135
________ ________
Net asset value per share 18
US Dollar (cents) 190.37 191.64
________ ________
Sterling (pence) 152.24 133.33
________ ________
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March
2017
Share Revenue
capital reserves Total
US$'000 US$'000 US$'000
Balance at 31 March 2016 229,199 (20,064) 209,135
Dividend paid - (6,184) (6,184)
Profit attributable to equity
shareholders - 4,800 4,800
________ ________ ________
Balance at 31 March 2017 229,199 (21,448) 207,751
________ ________ ________
For the year ended 31 March
2016
Share Revenue
capital reserves Total
US$'000 US$'000 US$'000
Balance at 31 March 2015 229,199 (23,414) 205,785
Dividend paid - (3,762) (3,762)
Profit attributable to equity
shareholders - 7,112 7,112
________ ________ ________
Balance at 31 March 2016 229,199 (20,064) 209,135
________ ________ ________
STATEMENT OF CASH FLOWS
Year ended Year ended
31 March 31 March
2017 2016
US$'000 US$'000
Cash flows from operating activities
Profit for the year 4,800 7,112
Net interest income from cash
and cash equivalents (117) (78)
Net changes in fair value of
financial assets at fair value
through profit or loss (10,641) (11,180)
Distribution income from investments 3,866 2,497
Realised gains on investee distributions 16,778 28,125
Realised currency gains on investment
distributions (764) (2,925)
Capital calls in relation to
investee expenses (4,647) (3,260)
Purchases of investments including
calls (48,386) (26,402)
Sales of investments and returns
of capital 19,094 15,166
Increase/(decrease) in trade
and other payables 3,770 (844)
Decrease/(increase) in trade
and other receivables 72 (602)
________ ________
Net cash (outflow)/inflow from
operating activities (16,175) 7,609
Cash flows from investing activities
Net interest income from cash
and cash equivalents 117 78
________ ________
Net cash inflow from investing
activities 117 78
Cash flows from financing activities
Equity dividends paid (6,184) (3,762)
________ ________
Net cash outflow from financing
activities (6,184) (3,762)
________ ________
Net change in cash and cash
equivalents for the year (22,242) 3,925
________ ________
Cash and cash equivalents at
beginning of the year 36,574 32,649
________ ________
Cash and cash equivalents at
the end of the year 14,332 36,574
________ ________
NOTES TO THE FINANCIAL STATEMENTS:
For the year ended 31 March 2017
1. General information
Aberdeen Private Equity Fund Limited (the "Company")
was incorporated with limited liability and registered
in Guernsey on 5 January 2007. The Company's
shares were listed on 9 July 2007 whereupon the
Company became a closed-ended investment company,
domiciled in Guernsey. The Company is authorised
by the Guernsey Financial Services Commission.
The principal activity of its subsidiary, APEF
Investments (Europe) S.a.r.l. which was incorporated
with limited liability and registered in Luxembourg
on 30 September 2016, is similar in all relevant
respects to that of its Guernsey parent.
2. Accounting policies
The accounting policies which are considered
material in relation to the Company's financial
statements, all of which have been applied consistently,
are as follows;
(a) Basis of preparation
The financial statements are prepared on a
going concern basis under the historical cost
convention, as modified by the revaluation
of financial assets and financial liabilities
at fair value through profit or loss.
Note 20 includes the Company's objectives,
policies and processes for managing its capital,
its financial risk management objectives, details
of financial instruments and exposure to financial
risks and liquidity risk. The Directors have
undertaken a rigorous review of the Company's
ability to continue as a going concern including
reviewing the on-going cash flows and the level
of cash balances and available liquidity facilities
as of the reporting date as well as taking
forecasts of future cash flows into consideration
and consideration of the continuation vote.
After making enquiries of the Investment Manager
and the Administrator, the Directors have a
reasonable expectation that the Company has
adequate resources to continue in operational
existence for at least one year from the date
the financial statements were signed. Accordingly,
the Directors continue to adopt a going concern
basis in preparing these financial statements.
Thus they have continued to adopt the going
concern basis of accounting in preparing the
financial statements.
The financial statements are prepared in accordance
with International Financial Reporting Standards
("IFRS") issued by the International Accounting
Standards Board ("IASB"), and interpretations
issued by the International Financial Reporting
Interpretations Committee ("IFRIC").
The preparation of financial statements in
conformity with IFRS requires the use of certain
critical accounting estimates which requires
management to exercise its judgement in the
process of applying the accounting policies.
Actual results may differ from these estimates.
It is in the area of valuation of investments
where management are required to exercise judgement
in the adoption of critical estimates which
can impact the carrying values of investments.
At the date of authorisation of these financial
statements, the following Standards and Interpretations
were in issue but not yet effective;
- IAS 7 Amendment - Disclosure Initiative
- IAS 12 Amendment - Recognition of Deferred
Tax Assets for Unrealised Losses
- IFRS 12 Amendment (AI 2014 -16) - Clarification
of the scope of the Standard
- IFRS 9 - Financial Instruments
- IFRIC 22 - Foreign Currency Transactions
and Advance Consideration
In addition, under the Annual Improvements
to IFRSs 2012 - 2014 Cycle, a number of Standards
are included for annual periods beginning on
or after 1 January 2017.
The Company intends to adopt the Standards
and Interpretations in the reporting period
when they become effective and the Board does
not anticipate that the adoption of these Standards
and Interpretations in future periods will
materially impact the Company's financial results
in the period of initial application although
there will be revised presentations to the
financial statements and additional disclosures.
In forming this opinion the Board specifically
notes the fundamental rewrite of accounting
rules for financial instruments under IFRS
9 and introduces a new classification model
for financial assets that is more principles-based
than the current requirements under IAS 39
Financial Instruments: Recognition and Measurement.
Financial assets are classified according to
their contractual cash flow characteristics
and the business models under which they are
held. Instruments will be classified either
at amortised cost, the newly established measurement
category fair value through other comprehensive
income or fair value through profit of loss.
The Company's portfolio does not include any
holdings which have contractual cash flows
and the Board have determined it will be appropriate
to continue to classify these investments at
fair value through profit or loss. In further
considering the Company's business model, the
Board is mindful that the Manager manages and
evaluates the performance of the Company on
a fair value basis and is compensated based
on the fair value of assets managed.
(b) Financial assets
i) Classification
A financial asset or financial liability
at fair value through profit or loss is
a financial asset or liability that is classified
as held-for-trading or designated at fair
value through profit or loss on inception.
Financial assets that are not held at fair
value through profit or loss include certain
balances due from brokers and accounts receivable.
Financial liabilities that are not at fair
value through profit or loss include certain
balances due to brokers and accounts payable.
ii) Recognition
The Company recognises financial assets
and financial liabilities on the date it
becomes party to the contractual provisions
of the asset or liability. Purchases and
sales of financial assets and financial
liabilities are recognised using trade date
accounting. From trade date, any gains and
losses arising from changes in fair value
of the financial assets or financial liabilities
are recorded in the Statement of Comprehensive
Income with financial assets and liabilities
being derecognised when the right to receive
cash flows or the obligation to pay settle
cash flows has expired or the Company has
transferred substantially all risks and
rewards of ownership.
iii) Fair value measurement principles
Financial assets and liabilities are initially
recorded at their transaction price and
then measured at fair value subsequent to
initial recognition. Gains and losses arising
from changes in the fair value of the 'financial
assets or financial liabilities at fair
value through profit or loss' category are
presented in the Statement of Comprehensive
Income for the period in which they arise.
Financial assets classified as receivables
are carried at amortised cost less any impairment
losses. Financial liabilities, other than
those at fair value through profit or loss,
are measured at amortised cost using the
effective interest rate method.
IFRS 13 'Fair Value Measurement' aims to
improve consistency and reduce complexity
by providing a precise definition of fair
value and a single source of fair value
measurement and disclosure requirements
for use across IFRSs. The requirements do
not extend the use of fair value accounting
but provide guidance on how it should be
applied where its use is already required
or permitted by other standards within IFRS.
iv) Investees
The Company's investments in investees (that
is, limited partnerships, co-investments
and companies in the investment portfolio)
are subject to the terms and conditions
of the respective investee's offering documentation.
The investments in the investees are valued
based on the reported Net Asset Value ("NAV")
of such assets as determined by the administrator
or General Partner of the investee and adjusted
by the Directors in consultation with the
Manager to take account of concerns such
as liquidity so as to ensure that investments
held at fair value through profit or loss
are carried at fair value. The reported
NAV is net of applicable fees and expenses
including carried interest amounts of the
investees and the underlying investments
held by each investee are accounted for,
as defined in the respective investee's
offering documentation. While the underlying
fund managers may utilise various model-based
approaches to value their investment portfolios,
on which the Company's valuations are based,
no such models are used directly in the
preparation of fair values of the investments.
The NAV of investees reported by the administrators
may subsequently be adjusted when such results
are subject to audit and audit adjustments
may be material to the Company.
v) Investment in Subsidiary
Entities which meet the definition of an
investment entity are required to fair value
subsidiaries through profit or loss rather
than consolidate them. An investment entity
meets the definition of an investment entity
if it satisfies the following three criteria:
(i) an entity obtains funds from one or
more investors for the purpose of providing
those investors with investment services;
the Company provides investment services
and has several investors who pool funds
to gain access to these services and investment
opportunities which they might not be able
to as individuals.
(ii) an entity commits to its investors
that its business purpose is to investment
solely for capital appreciation, investment
income, or both; the Company's investment
objective is to provide Ordinary Shareholders
with long-term capital gains through investment
in a diversified portfolio of private equity
funds and direct co-investments.
(iii) an entity measures and evaluates the
performance of substantially all of its
investments on a fair value basis; the Company
has elected to measure and evaluate the
performance of all of its investments on
a fair value basis. The fair value basis
is used to present the Company's performance
in its communication with the market and
the primary measurement attribute to evaluate
performance of all of its investments and
to make investment decisions.
The Company meets the definition of an investment
entity as defined by IFRS 10 and is required
to account for the investment in APEF Investments
(EUROPE) S.a.r.l. (the "Subsidiary"), which
is itself an investment entity, at fair
value through profit or loss.
These financial statements are the only
financial statements presented by the Company.
The Company controls 100% of the voting
rights and ownership interests in the Subsidiary,
acquired at the time of the Subsidiary's
incorporation in Luxembourg on 30 September
2016.
The Company and the Subsidiary operate as
an integrated structure whereby the Company
invests into the Subsidiary. Total subscriptions
made by the Company into the Subsidiary
during the year ended 31 March 2017 were
$1,947,000 (2016 - nil). As at 31 March
2017 and 31 March 2016 there were no capital
commitment obligations and no amounts due
to the Subsidiary for unsettled purchases.
Per IFRS 10, there is a requirement for
the Directors to assess whether the Subsidiary
is itself an Investment Entity. The Directors
have performed this assessment and have
concluded that the Subsidiary is itself
an Investment Entity for the reasons below:
(a) The Subsidiary has obtained funds for
the purpose of investing in equity or other
similar interests and providing the Company
(and its investors) with returns from capital
appreciation and investment income.
(b) The performance of investments made
through the Subsidiary are measured and
evaluated on a fair value basis.
Furthermore, the Subsidiary is itself not
deemed to be an operating entity providing
services to the Company, and therefore is
able to apply the exception to consolidation.
Movements in the fair value of the Subsidiary's
portfolio and corresponding movements in
the fair value of the Subsidiary may expose
the Company to a loss.
vi) Cash and cash equivalents
Cash and cash equivalents consist of cash
on hand, demand deposits and short-term,
highly liquid investments with original
maturities of three months or less.
vii) Listed securities
Listed investments are designated upon initial
recognition as at fair value through profit
or loss. Subsequent to initial recognition,
investments are valued at fair value which
for listed investments is deemed to be last
trade market prices. On adoption of the
standard, the Company elected to use last
traded price for valuing listed assets,
where this falls between the bid-ask spread.
(c) Interest income and dividend/distribution income
Interest income on cash and cash equivalents
is accrued using the effective interest method.
Dividend income and income from investees is
recognised when the right to receive payment
is established. Dividend income and income
from investees is recognised gross of tax deducted
at source, which is recognised as an operating
expense.
(d) Realised and unrealised gains and losses
Realised gains and losses arising on the disposal
of investments are calculated by reference
to the proceeds received on disposal and the
average cost attributable to those investments,
and are recognised in the Statement of Comprehensive
Income. Unrealised gains and losses on investments
held at fair value through profit or loss are
also recognised in the Statement of Comprehensive
Income.
(e) Foreign currency
i) Functional and presentation currency
The investments which the Company makes
are primarily denominated in US Dollars.
The Board of Directors considers US Dollars
as the currency that most faithfully represents
the economic effects of the underlying transactions,
events and conditions. The financial statements
are presented in US Dollars, which is the
Company's functional and presentation currency.
ii) Transactions and balances
Foreign currency transactions are translated
into the functional currency using the exchange
rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting
from the settlement of such transactions
and from the translation at year-end exchange
rates of monetary assets and liabilities
denominated in foreign currencies other
than US Dollars are recognised in the Statement
of Comprehensive Income.
(f) Expenses
All expenses recognised in the Statement of
Comprehensive Income are on an accruals basis.
(g) Share issue expenses
Expenses which are directly incurred only on
the issue of shares are written off against
the share premium account.
(h) Dividends payable
Dividends which are proposed as final dividends
for shareholder approval are recognised upon
shareholder approval being granted. Interim
dividends which are declared by the Board and
do not require shareholder approval are recognised
upon their declaration.
(i) Distributions in-specie
Where distributions in-specie occur, these
are designated upon initial recognition at
fair value through profit or loss. Thereafter
the assets are valued at fair value and in
line with the relevant accounting policy.
(j) Other receivables and payables
Other receivables do not carry any interest
and are short-term in nature, and are, accordingly,
stated at their amortised cost. Other payables
are non-interest bearing and are stated at
their amortised cost.
3. Segmental information
The Company engaged in a single segment of business
during the year: investment in the Private Equity
Funds (including direct and co-investments) portfolio.
A reconciliation of movements in value during
the year can be found in notes 10 and 13 where
additional analysis has been provided for the
benefit of shareholders.
The Company is domiciled in Guernsey. All of
the Company's income from investments is from
underlying investments that are incorporated
in countries other than Guernsey.
The Company has a diversified portfolio of investments
and in accordance with the Company's investment
policy no single investment may account for more
than 20% of the Company's net assets at the date
of investment.
2017 2016
4. Income US$'000 US$'000
Net interest income from cash
and cash equivalents 117 78
________ ________
2017 2016
5. Management fees US$'000 US$'000
Investment management fee 2,361 2,833
________ ________
During the year AFML provided management services
to the Company.
Under the terms of the management agreement,
for the six months ended 30 September 2016, the
basis of the monthly fee paid to the Manager
was equal to one-twelfth of 1.5% of the NAV of
the Company before deduction of any performance
fee but after deducting liabilities (excluding
from such liabilities the amount of any long-term
structured bank debt approved by the Board) and
deducting cash at bank, short-term deposits and
the value of holdings in money market funds plus
one-twelfth of 0.75% of the value of all cash
at bank, short-term deposits and holdings in
money market funds. Following a review of management
fee arrangements, with effect from 1 October
2016, the Manager is paid a monthly fee of one-twelfth
of 0.9% per annum of the NAV of the Company after
deducting liabilities but excluding long-term
structured debt. The fee is calculated and accrued
as at the last business day of each month and
is paid monthly in arrears. At 31 March 2017
US$157,000 was outstanding (31 March 2016 - US$239,000).
At the time of the launch of the Company the
previous manager entered into agreements to share
part of its management fee with certain shareholders
that had subscribed to the original offer. These
arrangements are continuing to the extent that
original shareholders have remained continuously
interested in the Company's shares.
2017 2016
US$'000 US$'000
Performance fee 1,887 -
________ ________
In addition, the Manager is entitled to a performance
fee subject to certain conditions.
In order to earn a performance fee all of the
following criteria must be met in a performance
fee period:
* the NAV must have risen by more than 8% in the
performance fee period;
* the NAV must exceed the high watermark (at which a
performance fee was last paid); and
* the NAV must have risen by more than 8% per annum
compounded over the previous three performance
periods.
The performance fee itself is calculated at 10%
of the NAV gain above the hurdle rate in the
performance period. Furthermore, the total fees
payable to the Manager in any performance period
is capped at 3% of NAV. As at 31 March 2017 US$1,887,000
was payable (31 March 2016 - US$nil). Notwithstanding
the fact that net asset value has decreased over
the period in the Company's functional and presentation
currency of US Dollars, the calculation basis
of the performance fee is based in Sterling terms
and given the fall in Sterling against the US
Dollar in the period this gives rise to a performance
fee being accrued at the period end.
2017 2016
6. Other operating expenses US$'000 US$'000
Administration fees{A} 159 176
Auditor's fees:
- audit 72 74
- for review of the interim report 15 22
Bank charges 4 4
Brokerage fees 49 52
Custody fees 14 15
Depositary fees 31 19
Directors' fees 182 195
Directors' and officers' insurance 12 18
Legal and professional fees{B} 233 195
Loan facility fees 494 206
Printing and communication{C} 127 136
Travel expenses 10 10
Listing fee 13 14
Registrar's fees 37 40
Regulatory fees 12 12
Subscription fees 22 19
Other expenses 6 4
________ ________
1,492 1,211
________ ________
{A} The Administrator is paid by the Company
a fee of GBP111,750 (US$140,000) per annum plus
disbursements. The contract notice period is
90 days. At 31 March 2017 GBP30,000 (US$36,000)
was outstanding (31 March 2016 - GBP29,000 (US$42,000)).
{B} Included within the total are costs of US$187,000
(2016 - US$nil) attributable to the renewal of
the loan facility and costs of US$36,000 (2016
- US$37,000) related to taxation services provided
by Ernst & Young LLP.
{C} Included in the total are costs attributable
to the Company's agreement with AAML ('AAML')
for the provision of promotional activities in
relation to the Company's participation in the
Aberdeen Investment Trust Share Plan and ISA.
The total fees paid and payable under the agreement
were GBP77,000 (US$107,000) (2016 - GBP74,000
(US$112,000)) and the sum due to AAM at the year
end was GBP18,000 (US$23,000) (2016 - GBP45,000
(US$66,000)).
7. Taxation
The Company is subject to federal and state tax
on effectively connected income ("ECI") received
from certain of its underlying portfolio holdings
in the US. Such taxes are deducted by the investee
from income before being paid to the Company.
Upon filing the Company's annual tax return with
US authorities the Company will be able to assess
whether any ECI tax paid on its behalf may be
recoverable. US$nil was identified as recoverable
at 31 March 2017 (31 March 2016 - US$nil). In
certain circumstances, the Company is also in
a position to receive recoverable withholding
taxes on distribution income from underlying
holdings. During the year ended 31 March 2017,
the Company incurred state taxes of US$61,000
and withholding tax expenses of US$256,000 and
received withholding tax refunds of US$46,000,
and federal tax refunds of US$8,000, therefore
amounting to a net tax expense for the year of
US$263,000. The Company is domiciled and registered
for taxation purposes in Guernsey where it pays
an annual exempt status fee (which is currently
GBP1,200) under The Income Tax (Exempt Bodies)
(Guernsey) Ordinances 1989 (as amended). Consequently,
the Company does not pay income or corporation
taxes there and, other than in the US as noted
above, does not currently suffer such taxes anywhere
else.
2017 2016
8. Dividends US$'000 US$'000
Amounts recognised as distributions
to equity holders in the period:
Dividend for 2016 - 2.20p (2015
- 2.20p) 3,457 3,762
Interim dividend for 2017 - 2.00p 2,727 -
(2016 - nil)
________ ________
6,184 3,762
________ ________
The proposed final dividend for 2017 has not
been included as a liability in these financial
statements as it is subject to shareholders'
approval at the Annual General Meeting which
is scheduled for 15 September 2017 (2016 - same).
The table below sets out the proposed final dividend,
and dividends paid, in respect of the financial
year.
2017 2016
US$'000 US$'000
Interim dividend for 2017 - 2.00p 2,727 -
(2016 - nil)
Proposed final dividend for 2017
- 2.00p (2016 - dividend -2.20p) 2,729 3,457
________ ________
5,456 3,457
________ ________
9. Earnings per share
The basic earnings per share is calculated by
dividing the profit attributable to equity shareholders
of GBP3,839,000 (US$4,800,000); (2016 - GBP4,948,000)
(US$7,112,000)) by 109,131,199 (2016 - 109,131,199)
shares, the weighted average number of shares
in issue during the year. There were no potentially
dilutive shares in issue at 31 March 2017 (31
March 2016 - nil). Whilst the Company has chosen
to report basic earnings per share in a currency
other than its functional and presentation currency
as supplementary information it has complied
with the requirements of IFRS including the translation
method.
2017 2016
Private Private
Equity Equity
Funds Funds
10. Financial assets held at fair US$'000 US$'000
value through profit or loss
Cost at beginning of year 142,967 131,609
Additions 48,386 26,402
Disposals and return of capital (19,094) (15,166)
Realised gains/(losses) on investments 3,445 122
________ ________
Cost at end of year 175,704 142,967
Unrealised gains on investments 22,100 30,137
________ ________
Fair value at end of year 197,804 173,104
________ ________
As at 31 March 2017 (2016 - same) there was one
operating segment, being Private Equity Funds
and direct and co-investments.
11. Unconsolidated structured entities
The Company invests in investment funds and has
assessed whether these investees should be classified
as unconsolidated structured entities in accordance
with IFRS 12 - Disclosure of Interests in Other
Entities. These investees are closed-end private
equity limited partnerships or investment companies
which invest in underlying companies for the
purposes of capital appreciation. These entities
are generally financed through committed capital
from limited partners or shareholders, with cash
being drawn down for financing investment activity.
The Company has considered the voting rights
and other similar rights afforded to investors
in these investees, including the rights to remove
the General Partner or liquidate the investee.
The Company has concluded that these rights or
the contractual agreement with the General Partner
is the dominant factor in controlling the investees.
As at 31 March 2017, the Company's maximum exposure
to loss attributable to these entities comprises
the current carrying value of the assets, along
with the uncalled committed capital relating
to those investments, as summarised below:
31 March 31 March
2017 2016
US$'000 US$'000
Financial assets held at fair
value through profit or loss 197,804 173,104
Uncalled commitments 141,888 122,816
________ ________
Maximum loss exposure 339,692 295,920
________ ________
12. Fair value hierarchy
IFRS 7 'Financial Instruments: Disclosures' requires
an entity to classify fair value measurements
using a fair value hierarchy that reflects the
subjectivity of the inputs used in making measurements.
Fair value estimation
The Company has adopted IFRS 13 'Fair Value Measurement'.
The fair value of financial assets and liabilities
traded in active markets is based on quoted market
prices at the close of trading on the period
end. If a significant movement in fair value
occurs immediately subsequent to the close of
trading on the period end date, valuation techniques
will be applied to determine the fair value.
An active market is a market in which transactions
for the asset or liability take place with sufficient
frequency and volume to provide pricing information
on an ongoing basis.
Investments in private equity funds, including
co-investments, may not have a readily available
market and are therefore valued based on the
fair value of each private equity fund as reported
by the respective General Partner as per the
capital account summary statement, normally updated
and received on a calendar quarterly basis, which
includes estimates made by those General Partners.
The Board and Manager believe that this value,
in most cases, represents fair value as of the
relevant statement date, although, if other factors
lead the Board or Manager to conclude that the
fair value attributed by the General Partner
does not match their estimate of actual fair
value, the Board and Manager will adjust the
value of the investment from the General Partner's
estimate. The Board and Manager estimate fair
value using publicly available information and
the most recent financial information provided
by the General Partners, as adjusted for cash
flows since the date of the most recent financial
information. As the key input into the model
is official valuation statements, we do not consider
it appropriate to put forward a sensitivity analysis
on the basis insufficient benefit is likely to
be derived by the end user. 94% by value of the
portfolio has been valued using 31 March 2017
quarter-end valuations, 2% has been valued using
an estimate of value at 31 March 2017 and 4%
has been valued using 31 December 2016 quarter-end
valuations, adjusted for cash movements.
The Company has classified fair value measurements
using a fair value hierarchy that reflects the
significance of the inputs used in making the
measurements. The fair value hierarchy has the
following levels:
Level 1: quoted prices (unadjusted) in active
markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included
within Level 1 that are observable for the assets
or liability, either directly (ie as prices)
or indirectly (ie derived from prices); and
Level 3: inputs for the asset or liability that
are not based on observable market data (unobservable
inputs).
The level in the fair value hierarchy within
which the fair value measurement is categorised
in its entirety is determined on the basis of
the lowest level input that is significant to
the fair value measurement of the instrument
in its entirety. For this purpose, the significance
of an input is assessed against the fair value
measurement in its entirety. If a fair value
measurement uses observable inputs that require
significant adjustment based on unobservable
inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input
to the fair value measurement in its entirety
requires judgement, considering factors specific
to the financial asset or liability.
The determination of what constitutes "observable"
requires significant judgement by the Directors
in consultation with the Manager. The Directors
consider observable data to be that market data
that is readily available, regularly distributed
or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are
actively involved in the relevant market.
The following tables summarise by level within
the fair value hierarchy the Company's financial
assets and liabilities at fair value as follows:
Level Level Level Total
1 2 3
31 March 2017 US$'000 US$'000 US$'000 US$'000
Financial assets at
fair value through
profit and loss - - 197,804 197,804
________ ________ ________ ________
Level Level Level Total
1 2 3
31 March 2016 US$'000 US$'000 US$'000 US$'000
Financial assets at
fair value through
profit and loss - - 173,104 173,104
________ ________ ________ ________
A reconciliation of fair value measurements in
Level 3 is set out in the following table (Private
Equity Funds includes co-investments):
Private
Equity
Funds
Year ended 31 March 2017 US$'000
Opening balance 173,104
Purchases including calls 48,386
Sales and return of capital (19,094)
Total gains or losses on investments included
in Statement of Comprehensive Income:
- on assets sold 3,445
- on assets held at the year end (8,037)
________
197,804
________
Private
Equity
Funds
Year ended 31 March 2016 US$'000
Opening balance 175,125
Purchases including calls 26,402
Sales and return of capital (15,166)
Total gains or losses on investments included
in Statement of Comprehensive Income:
- on assets sold 122
- on assets held at the year end (13,379)
________
173,104
________
13. Net changes in fair value of financial assets
at fair value through profit or loss
The net realised and unrealised investment gain
or loss from financial assets at fair value through
profit or loss shown in the Statement of Comprehensive
Income is analysed as follows:
2017 2016
US$'000 US$'000
Unrealised losses on investments (8,037) (13,379)
Capital calls in relation to investee
expenses{A} (4,647) (3,260)
Realised gains on disposal of
investments 3,445 122
Realised gains on investee distributions 16,778 28,125
Realised currency losses on investee
distributions (764) (2,925)
Distribution income from investments 3,866 2,497
________ ________
10,641 11,180
________ ________
{A} Capital call expenses relate to management
fees and other expenses paid to investees.
2017 2016
14. Other receivables: amounts due US$'000 US$'000
within one year
Prepayments 519 654
Due from Subsidiary 75 -
Accrued interest - 12
________ ________
594 666
________ ________
The fair value of other payables approximates
carrying value due to the short-term nature of
these instruments.
2017 2016
15. Creditors: amounts due within US$'000 US$'000
one year
Due within one year
Management fees 157 239
Performance fee 1,887 -
Outstanding settlements 2,500 -
Loan facility arrangement fee 144 474
Other expenses 291 337
________ ________
4,979 1,050
________ ________
Due after more than one year
Loan facility arrangement fee - 159
________ ________
The fair value of other payables approximates
carrying value due to the short-term maturity
of these instruments.
2017 2016
16. Share capital US$'000 US$'000
Management shares
Authorised: 10,000 shares of GBP1
each
2 Management shares of GBP1 each - -
________ ________
- -
________ ________
2017 2016
US$'000 US$'000
Ordinary shares
Authorised: unlimited number of
shares of no par value
Share capital and share premium
issued and fully paid
Opening balance of 109,131,199
(2016 - 109,131,199) Sterling
shares 229,199 229,199
Nil (2016 - nil) Sterling shares - -
repurchased/issued during the
year
________ ________
Closing balance of 109,131,199
Sterling shares 229,199 229,199
________ ________
The authorised share capital of the Company on
incorporation was GBP10,000 divided into 10,000
shares of GBP1.00 each. On 31 May 2007 a special
resolution was passed by the Company to increase
the share capital to an unlimited number of participating
shares of no par value ("shares"), which upon
issue, the Directors were able to designate as
Sterling shares, US Dollar shares or otherwise
as determined by the Directors at the time of
issue, and 10,000 Management shares of GBP1.00
each.
The shares were issued on 4 July 2007 as a result
of the Company announcing the placing and offer
for subscription of its shares on 6 June 2007.
Shareholders' rights attaching to the Sterling
shares are detailed within the "Glossary of Terms
and Definitions" on page 88 of the Annual Report.
Following approval by shareholders of the Share
Conversion Proposal on 3 June 2010, all the US
Dollar shares were converted into new Sterling
shares on 2 July 2010, on the basis of 0.5810
new Sterling shares for every US Dollar share
held.
The Company's Sterling shares give shareholders
the entitlement to all of the capital growth
in the Company's assets and to all the income
from the Company that is resolved to be distributed.
The Sterling shares are in registered form and
traded on the London Stock Exchange's Main Market.
Subject to the Articles of Incorporation, on
a show of hands every registered holder of Shares
(a shareholder) who is present in person (or,
being a corporation, by representative) shall
have one vote. On a poll every shareholder present
in person (or, being a corporation, by representative)
or by proxy shall be entitled to one vote in
respect of each Share held by him. In the case
of joint holders, the vote of the senior who
tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes
of the other joint holders, and for this purpose
seniority shall be determined by the order in
which the names stand in the register of members
in respect of the Shares. On a winding up of
the Company, following payment to the holders
of Management Shares of any sums up to the nominal
amount paid up thereon, the assets of the Shares
available for distribution among the holders
of Shares shall be distributed amongst the holders
pro rata to the number of such Participating
Shares held by each shareholder and no holder
of Shares shall have any claim against the Company
or any remaining assets of the Company in respect
of any shortfall.
2017 2016
17. Revenue reserves US$'000 US$'000
Opening revenue reserves (20,064) (23,414)
Profit attributable to equity
shareholders 4,800 7,112
Dividend paid (6,184) (3,762)
________ ________
Closing revenue reserves (21,448) (20,064)
________ ________
Revenue reserves attributable
to shareholders (21,448) (20,064)
________ ________
18. Net asset value
The net asset value of each share is determined
by dividing the net assets of the Company attributable
to the shares of GBP166,141,000 (US$207,751,000);
(2016 - GBP145,505,000 (US$209,135,000)) by 109,131,199
(2016 - 109,131,199), being the number of shares
in issue at the year end. Whilst the Company
has chosen to report net asset value per share
in a currency other than its functional and presentation
currency as supplementary information it has
complied with the requirements of IFRS including
the translation method.
19. Commitments
The table below summarises commitments to the
underlying investments of the Company at 31 March
2017.
Total Outstanding
Currency Commitments Currency Commitments
'000 US$'000 '000 US$'000
Apax 8 (A8 -A (Feeder))
L.P. EUR 10,000 10,696 EUR 812 869
CCMP Capital Investors
III L.P. 15,000 6,599
Coller International
Partners V L.P. 15,000 3,270
CVC Capital Partners
Asia Pacific IV
L.P. 10,000 6,653
Exponent Private
Equity Partners
III L.P. GBP10,000 12,505 GBP4,995 6,246
FFL Parallel Fund
IV L.P. 10,000 5,881
Goldman Sachs Capital
Partners VI L.P. 15,000 2,238
Gores Capital Partners
III L.P. 10,000 1,644
HIG Bayside Debt
& LBO Fund II L.P. 15,000 2,435
Latour Capital II
L.P. EUR 10,000 10,696 EUR 8,040 8,599
Lion Capital Fund
III L.P. EUR 10,000 10,696 EUR 1,681 1,798
Longreach Capital
Partners Ireland
1, L.P 7,425 280
Longreach Capital
Partners 2 - USD,
L.P. 7,500 1,010
MatlinPatterson
Global Opportunities
Partners III L.P. 10,000 434
MML Capital Partners
Fund VI L.P. EUR 13,000 13,903 EUR 7,435 7,952
Montagu V L.P. EUR 8,000 8,556 EUR 7,720 8,257
MTS Health Investors
IV L.P. 15,000 12,792
Nazca Fund IV FCR EUR 10,000 10,696 EUR 9,124 9,758
Northzone Ventures
VI L.P. EUR 10,000 10,696 EUR 366 392
Northzone VIII L.P. EUR 12,000 12,834 EUR 10,025 10,722
Oaktree OCM Opportunities
Fund VIIb L.P. 15,000 1,500
Pangaea Two Parallel
L.P. 5,000 1,799
Pine Brook Capital
Partners L.P. 10,000 985
Resolute Fund III
L.P. 15,000 7,599
RHO Ventures VI 10,000 -
L.P.
Sagard 3 FCPI EUR 10,000 10,696 EUR 5,584 5,973
Silver Lake Partners
III L.P. 15,000 1,621
StepStone International
Investors III L.P. EUR 14,600 15,615 EUR 449 480
Summa Equity Fund
I (No.2) AB SEK 145,500 16,295 SEK 125,922 14,104
Tenaya Capital V
L.P. 12,500 1,120
Tenaya Capital VI
L.P. 5,000 872
Thoma Bravo Fund 10,000 -
IX L.P.
Wisequity IV EUR 10,000 10,696 EUR 6,211 6,643
Co-investments 20,963 1,363
________ ________
As at 31 March 2017 402,968 141,888
________ ________
20. Financial risk management
The Company maintains positions in a variety
of investees as determined by its investment
management strategy.
The investees' own investing activities expose
the Company to various types of risks that are
associated with the financial investments and
markets in which they invest. The significant
types of financial risks, to which the Company
is exposed are market risk, credit risk and liquidity
risk.
Asset allocation is determined by the Company's
Manager which manages the allocation of assets
to achieve the investment objectives. Achievement
of the investment objectives involves taking
risks. The Manager exercises judgement based
on analysis, research and risk management techniques
when making investment recommendations. Adherence
to target asset allocations and the composition
of the portfolio is monitored by the Board.
Risk management framework
The directors of Aberdeen Fund Managers Limited
collectively assume responsibility for obligations
under the AIFMD including reviewing investment
performance and monitoring the Company's risk
profile during the year.
AFML is a fully integrated member of the Aberdeen
Group, which provides a variety of services and
support to AFML in the conduct of its business
activities, including in the oversight of the
risk management framework for the Company. AFML
has delegated the day to day administration of
the investment policy to Aberdeen Asset Managers
Limited, which is responsible for ensuring that
the Company is managed within the terms of its
investment guidelines and the limits set out
in its pre-investment disclosures to investors
(details of which can be found on the Company's
website). AFML has delegated responsibility for
monitoring and oversight of the Investment Manager
and other members of the Aberdeen Group which
carry out services and support to APWML to Aberdeen
Fund Managers Limited.
The Manager conducts its risk oversight function
through the operation of the Group's risk management
processes and systems which are embedded within
the Group's operations. The Group's Risk Division
supports management in the identification and
mitigation of risks and provides independent
monitoring of the business. The Division includes
Compliance, Business Risk, Market Risk, Risk
Management and Legal. The team is headed up by
the Group's Head of Risk, who reports to the
Chief Executive Officer of the Group. The Risk
Division achieves its objective through embedding
the Risk Management Framework throughout the
organisation using the Group's operational risk
management system ("SWORD").
The Group's Internal Audit Department is independent
of the Risk Division and reports directly to
the Group CEO and to the Audit Committee of the
Group's Board of Directors. The Internal Audit
Department is responsible for providing an independent
assessment of the Group's control environment.
The Group's corporate governance structure is
supported by several committees to assist the
board of directors of Aberdeen, its subsidiaries
and the Company to fulfil their roles and responsibilities.
The Group's Risk Division is represented on all
committees, with the exception of those committees
that deal with investment recommendations. The
specific goals and guidelines on the functioning
of those committees are described on the committees'
terms of reference.
Risk management
The significant types of risk that the Company
is exposed to are detailed below:
a) Capital management risk
- the Company may not be able to continue
as a going concern, and
- the balance between equity capital and debt
may become inappropriate resulting in an adverse
impact on returns to shareholders.
The capital of the Company is represented
by the net assets attributable to the holders
of the Company's shares.
It is the Board's policy to monitor and review
the broad structure of the Company's capital
on an ongoing basis. This review includes
the nature and planned level of gearing, which
takes account of the Manager's views on the
market and the extent to which any return
of capital may be made to equity shareholders
via dividends or share repurchases. The Company
may borrow up to 25% of the net assets of
the Company. Capital transactions undertaken
during the year are disclosed in the Chairman's
Statement.
b) Market risk
The potential for adverse changes in the fair
value of the Company's investment portfolio
is referred to as market risk. Commonly used
categories of market risk include currency
risk, interest rate risk and other price risk.
* Currency risk may result from exposure to changes in
spot prices, forward prices and volatilities of
currency exchange rates.
* Interest rate risk may result from exposures to
changes in the level, slope and curvature of the
various yield curves, the volatility of interest
rates, and credit spreads.
* Other price risk is the risk that the value of an
instrument will fluctuate as a result of changes in
market prices other than those arising from currency
risk or interest rate risk.
i) Market risk management
The Company's unlisted equity securities are
susceptible to market price risk arising from
uncertainties about future values of the investment
securities. The Manager provides the Company
with investment recommendations that are consistent
with the Company's objectives.
The valuation method of these investments
is described within the accounting policies.
The nature of some of the Company's investments,
which are unquoted investments in private
equity funds and co-investments, means that
the investments are valued by the Manager
on behalf of the Company after due consideration
of the most recent available information from
the underlying investments as adjusted where
relevant by the Directors. While the underlying
fund managers may utilise various model-based
approaches to value their investment portfolios,
on which the Company's valuations are based,
no such models are used directly in the preparation
of fair values of the investments.
Market risk is the risk that the fair value
or future cash flows of a financial instrument
will fluctuate because of changes in market
prices. The investments of the Company are
subject to normal market fluctuations and
the risks inherent with investment in financial
markets. The maximum risk resulting from financial
instruments held by the Company is determined
by the fair value of the financial instruments.
The Manager moderates this risk through careful
selection of funds managed by experienced
fund managers, which meet the investment objectives;
the Company's market risk is managed through
diversification of the investment portfolio.
Through a variety of analytical techniques,
the Manager monitors, on a daily basis, the
Company's overall market positions, as well
as its exposure to market risk.
ii) Currency risk
The Company has assets and liabilities denominated
in currencies other than US Dollars, its functional
currency. The Company is therefore exposed
to currency risk, as the value of the assets
and liabilities denominated in other currencies
fluctuates due to changes in exchange rates.
The table below summarises the Company's exposure
in US Dollars to currency risks at the year
end:
As at 31 March US'000 GBP'000 EUR'000 SEK'000 Total
2017
Assets/(liabilities)
Financial assets
at fair value
through profit
or loss 127,079 11,701 57,026 1,998 197,804
Cash and cash
equivalents 13,335 331 666 - 14,332
Other assets
and liabilities (4,385) - - - (4,385)
________ ________ ________ ________ ________
Total at 31 March
2017 136,029 12,032 57,692 1,998 207,751
________ ________ ________ ________ ________
As at 31 March US'000 GBP'000 EUR'000 SEK'000 Total
2016
Assets/(liabilities)
Financial assets
at fair value
through profit
or loss 121,829 8,257 43,018 - 173,104
Cash and cash
equivalents 29,995 3,644 2,935 - 36,574
Other assets
and liabilities (543) - - - (543)
________ ________ ________ ________ ________
Total at 31 March
2016 151,281 11,901 45,953 - 209,135
________ ________ ________ ________ ________
Currency risk
sensitivity
Based on the Company's exposure to monetary
assets and liabilities denominated in Euros
per the table above and the exchange rate
at 31 March 2017 per note 23, a 10% strengthening
in the US Dollar would result in a decrease
in the net assets of the Company of US$5,769,000.
Based on the Company's exposure to monetary
assets and liabilities denominated in Euros
per the table above and the exchange rate
at 31 March 2017 per note 23, a 10% weakening
in the US Dollar would result in a decrease
in the net assets of the Company of US$5,769,000.
Based on the Company's exposure to monetary
assets and liabilities denominated in Sterling
per the table above and the exchange rate
at 31 March 2017 per note 23, a 10% strengthening
in the US Dollar would result in a decrease
in the net assets of the Company of US$1,203,000.
Based on the Company's exposure to monetary
assets and liabilities denominated in Euros
per the table above and the exchange rate
at 31 March 2017 per note 23, a 10% weakening
in the US Dollar would result in a decrease
in the net assets of the Company of US$1,203,000.
Based on the Company's exposure to monetary
assets and liabilities denominated in Swedish
Krona per the table above and the exchange
rate at 31 March 2017 per note 23, a 10% strengthening
in the US Dollar would result in a decrease
in the net assets of the Company of US$200,000.
Based on the Company's exposure to monetary
assets and liabilities denominated in Euros
per the table above and the exchange rate
at 31 March 2017 per note 23, a 10% weakening
in the US Dollar would result in a decrease
in the net assets of the Company of US$200,000.
iii) Interest rate risk
The Company is exposed to interest rate risk.
The Company invests primarily in private equity
funds and private equity like funds that are
non interest bearing investments, mainly subject
to market risk. Interest receivable on bank
deposits or payable on loan positions will
be affected by fluctuations in interest rates.
Changes to prevailing interest rates or changes
in expectations of future rates may result
in an increase or decrease in the value of
the securities held. In general, if interest
rates rise, the value of fixed income securities
will decline. A decline in interest rates
will, in general, have the opposite effect.
Although the majority of the Company's financial
assets and liabilities are non interest bearing,
cash and cash equivalents represent 7% of
the Company's NAV (31 March 2016 - 18%). As
a result, the Company is subject to some risk
due to fluctuations in the prevailing levels
of market interest rates. Any excess cash
and cash equivalents are invested at short-term
market interest rates.
As at 31 March 2017 the Company's interest
bearing assets and liabilities, all of which
receive or pay interest at a variable rate,
were as follows:
2017 2016
US$'000 US$'000
Cash and cash equivalents 14,332 36,574
________ ________
Based on the cash and cash equivalents held
at 31 March 2017, a movement of 0.25% in market
interest rates would impact the Company's
annual income by approximately US$36,000 per
annum (2016 - US$92,000 per annum).
iv) Other price risk
Other price risk is the risk that the value
of the investees' financial investments will
fluctuate as a result of changes in market
prices, other than those changes arising from
currency risk or interest rate risk whether
caused by factors specific to an individual
investment, its issuer or any factor affecting
financial investments traded in the market.
As the Company's investments are carried at
fair value with fair value changes recognised
in the Statement of Comprehensive Income,
all changes in market conditions will directly
affect the overall NAV.
The investments are valued based on the latest
available unaudited price of such shares or
interests as determined by the administrator
or General Partner of each investee. Furthermore,
valuations received from the administrators
or General Partners of the investees may be
estimates and such values are generally used
to calculate the NAV of the Company. Such
estimates provided by the administrators or
General Partner of the investees may be subject
to subsequent revisions which may not be restated
for the purpose of the Company's final month-end
NAV.
Currency, interest rate and other price risk
are managed by the Company's Manager as part
of the integrated market risk management processes.
c) Credit risk
The Company takes on exposure to credit risk,
which is the risk that a counterparty will
be unable to pay amounts in full when due.
The Manager has adopted procedures to reduce
credit risk related to the Company's dealings
with counterparties. Before transacting with
any counterparty, the Manager or its affiliates
evaluate both creditworthiness and reputation
by conducting a credit analysis of the party,
its business and its reputation. The credit
risk of approved counterparties is then monitored
on an ongoing basis, including periodic reviews
of financial statements and interim financial
reports as needed. Impairment provisions are
provided for losses, if any, that have been
incurred by the Balance Sheet date.
At 31 March 2017 and 31 March 2016, the following
financial assets were exposed to counterparty
credit risk: cash and cash equivalents. The
carrying amounts of financial assets best
represent the maximum credit risk exposure
at the year end date.
The Company places cash deposits with counterparties
whose credit ratings are all investment graded.
Ratings for fixed deposits, as rated primarily
by Moody's that subject the Company to credit
risk at 31 March 2017 and 31 March 2016 are
noted below:
2017 2016
Credit ratings for Rating % of Rating % of
short-term notes NAV NAV
Standard Chartered P-1 0.3 P-1 2.5
Barclays Bank P-1 5.6 P-1 1.7
The Company has also placed funds within Aberdeen
Liquidity Funds which are rated by S&P at
31 March 2017 and 31 March 2016 as noted below:
2017 2016
Credit ratings for Rating % of Rating % of
short-term funds NAV NAV
Sterling Fund A-1 0.1 A-1 1.7
US Dollar Fund A-1 0.9 A-1 11.5
d) Liquidity risk
The Company's financial instruments include
investments in unlisted securities, which
are not traded in an organised public market
and may generally be illiquid. Although this
illiquidity is considered as part of the investment
valuations, should the Company be required
to dispose of such investments in a short
time-frame, an action that is not consistent
with the Company's investment objective, the
Company may have difficulty liquidating quickly
its investments in these instruments at an
amount close to fair value in order to respond
to its liquidity requirements or to specific
events.
The financial liabilities of the Company comprise
trade and other payables. The Company will
generally retain sufficient cash and cash
equivalent balances to satisfy trade and other
payables as they fall due.
The Company's outstanding commitments are
detailed in note 19. When an over-commitment
approach is followed, the aggregate amount
of capital committed by the Company to investments
at any given time may exceed the aggregate
amount of cash that the Company has available
for immediate investment, so there is a risk
that the Company might not be able to meet
capital calls when they fall due. To manage
this risk, the Company holds an appropriate
amount of its assets in cash and cash equivalents
together with a selection of readily realisable
investments as well as access to a revolving
credit facility detailed below.
In planning the Company's commitments, the
Manager takes into account expected cash flows
to and from the portfolio of fund interests
and, from time to time, may use borrowings
to meet draw downs; these expected cash flows
are monitored against actual draw downs and
distributions on a monthly basis to assess
the level of additional commitments that can
be made and how much cash needs to be kept
on hand. The Directors have resolved that
the Company may borrow up to 25% of its NAV
for short-term or long-term purposes.
As at 31 March 2017, the Company had a revolving
credit facility in place of GBP40 million
(2016 - GBP40 million) with LLoyds Banking
Group. The terms of the loan facility contain
two main covenants; (i) LTV test - the Company
shall ensure that at all times the aggregate
amount of all financial indebtedness shall
not exceed 20% of the Adjusted Net Asset Value
and (ii) Commitment test - if and for so long
as the ratio of unfunded commitments to liquidity
is more than 2.5:1, the Borrower shall not
enter into any further Investment Commitments
in any unlisted Investment in respect of which
there are uncalled commitments. The Company
met both these covenants throughout the period
for which the loan facility was utilised.
The table below sets out the liquidity risk
of the Company as at 31 March 2017 and 31
March 2016. All liabilities represent amounts
falling due within twelve months. Amounts
due within twelve months equal their carrying
balances.
Less than Less than
one year one year
2017 2016
Financial liabilities US$'000 US$'000
Other payables 4,979 1,050
________ ________
Based on on-going communications with General
Partners and the Manager's best estimates
as at 31 March 2017, the outstanding commitments
could be drawn down with the following maturity
profile:
2017 2016
Maturity US$ million US$ million
Less than 3 months 16 11
3-6 months 8 8
6-12 months 14 14
1-2 years 28 19
Greater than 2 years 76 70
________ ________
142 122
________ ________
There is no guarantee of this call rate. Any
new investments or secondary sales made will
alter these figures and assumptions.
As at 31 March 2017, an analysis of the financial
instruments by category shows assets held
at fair value through profit or loss of US$197,804,000
(2016 - US$ 173,104,000), deposits and receivables
of US$14,332,000 (2016 - US$36,586,000) and
other financial liabilities totalling US$4,979,000
(2016 - US$1,209,000).
21. Related party transactions
Directors' fees and interests
Fees payable during the year to the Directors
and their interests in shares of the Company
are disclosed within the Directors' Remuneration
Report in the Annual Report.
Transactions with Service Providers
During the year, the Company had an agreement
with AFML for the provision of management services.
AFML also acts as the alternative investment
fund manager (AIFM) of the Company and delegates
the portfolio management of and the provision
of promotional activities for the Company to
AAML. AFML and AAML are all wholly owned subsidiaries
of AAM PLC. Details of transactions during the
year and balances outstanding at the year end
are disclosed in notes 5 and 6.
As at 31 March 2017, the Company had holdings
amounting to US$2,037,000 (2016 - US$27,557,000)
in Aberdeen Liquidity Funds which are managed
and administered by AAML. The Company pays a
management fee of 0.9% per annum on the value
of these holdings but no fee is chargeable at
the underlying fund level. Details of these holdings
can be found within the Investment Portfolio.
22. Controlling party
In the opinion of the Directors on the basis
of shareholdings advised to them, the Company
has no immediate or ultimate controlling party.
23. Exchange rates
As at 31 March 2017 and 31 March 2016, the exchange
rates used (against US$) in preparation of these
financial statements are as follows:
2017 2016
US$ US$
Sterling 1.2505 1.4373
Euro 1.0696 1.1396
Swedish Krona 0.1120 0.1234
24. Geographical analysis
Geographic breakdown is determined by the geographical
area in which each Fund has indicated that it
will invest:
2017 2016
US$m US$m
Global 70.6 59.3
North America 64.9 67.6
Europe 38.1 31.7
Asia & Other 24.2 14.5
The Company engages in a single segment of business
as detailed in note 3 to the financial statements
and geographical analysis is provided as supplemental
information.
25. Subsequent events
On 10 April 2017 the Company committed GBP2.2
million to co-invest in BP INV3 L.P.
Other than this there were no material subsequent
events.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
The above financial information does not constitute statutory
financial statements as defined in Section 262 of The Companies
(Guernsey) Law, 2008. The comparative information is based on the
statutory financial statements for the year ended 31 March 2016.
Those financial statements, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of
Companies. Statutory financial statements for the year ended 31
March 2017 will be filed in due course.
The Annual General Meeting of the Company will be held at 10.30
a.m. on 15 September 2017 at 1 Royal Plaza, Royal Avenue, St Peter
Port, Guernsey GY1 2HL.
The audited Annual Report and Financial Statements incorporating
the Notice of Annual General Meeting will be posted to shareholders
during July. Copies may be obtained during normal business hours
from the Company's Registered Office, 1 Royal Plaza, Royal Avenue,
St Peter Port, Guernsey GY1 2HL Channel Islands or from the
Manager, Bow Bells House, 1 Bread Street, London EC4M 9HH. Further
copies will be available for download from the Company's website
www.aberdeenprivateequity.co.uk.
Neither the content of the Company's website nor the content of
any website accessible from hyperlinks on the Company's website (or
any other website) is (or is deemed to be) incorporated into, or
forms (or is deemed to form) part of this announcement.
By order of the Board
Ipes (Guernsey) Limited
Company Secretary
26 June 2017
[i] Situation in UK Parliament where no one party has prevailed
with a majority over all other parties
[ii] Cash plus debtors less creditors
[iii] Excludes underlying companies in the portfolio's two
Secondary funds (Coller V, StepStone III)
[iv] This figure includes performance from existing investments
and from any new investments made during the year. It is inclusive
of fees charged by underlying managers during the year, including
accruals for GPs' performance fees ("carried interest") but does
not include management and/or any performance fees charged to the
Company
[v] Source Aberdeen Asset Management based on GP supplied
reports
[vi] "Trade sale" - a sale to a business. "Secondary sale" - a
sale to another private equity investor (also known as a "Financial
Sale")
[vii] For the purposes of this analysis, income from investments
has been capitalised into the distributions figure
[viii] Source Aberdeen Asset Management, in local currency and
inclusive of income distribution
[ix] New York Stock Exchange
[x] Heating, Ventilation and Air Conditioning
[xi] US based securities exchange, with historic technology
bias
[xii] Source Aberdeen Asset Management, in local currency and
inclusive of income distribution
[xiii] The ratio of distributed capital to investors' paid in
capital, known as 'Distributed to Paid In'
[xiv] Legally completed, but not yet drawn
[xv] In addition the Company also paid calls for this period of
$4.6m in relation to GPs fees and expenses (previous year,
$3.1m)
[xvi] Excluding calls for co-investments
[xvii] Excluding secondary market fund sales' proceeds
[xviii] In this case, referring to the replacement of LPs'
equity (and subsequent distribution thereof) with debt. Often
referred to as a 'dividend recapitalisation', or simply 'recap'
[xix] The CBOE Volatility index which measures implied
volatility of S&P 500 index options
[xx] March 2017, based on LBO purchase prices as measured by
total consideration over EBITDA
[xxi] MJ Hudson Private Equity Fund Terms Research 2017 (quoting
Preqin Private Equity online)
[xxii] Limited Partnership Agreements
[xxiii] Global Financial Crisis
[xxiv] Underlying Portfolio Fund Company
[xxv] Three year committed revolving credit facility with Lloyds
Bank plc, effective 31 March 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEAFLMFWSEIM
(END) Dow Jones Newswires
June 26, 2017 11:05 ET (15:05 GMT)
Aberdeen Prv (LSE:APEF)
Historical Stock Chart
From Apr 2024 to May 2024
Aberdeen Prv (LSE:APEF)
Historical Stock Chart
From May 2023 to May 2024