Blackstone/GSO LnFin - Annual Financial Report - Part 2
25/04/2017 17:45
- Part 2: For the preceding part double click ID:nRSY3203Da
impact the ability of the Company to produce required minimum returns or maintain its reputation in the market place. The day-to-day operations and functions of the Company have been delegated to third-party service providers who are subject to oversight of the Board. All the service
providers of the Company are selected on their expertise and ability to carry out their respective functions. Annual monitoring of the service providers is carried out by
the Management Engagement Committee through completion of an in-depth due diligence questionnaire, attestations and ratings, covering all areas of service and ability to
carry out the role including, but not limited to, internal controls processes and systems, key man risk, conflict of interest procedures and cyber security. Through
reporting to the Board at the quarterly board meeting and an active compliance monitoring programme, any non-compliance by a service provider to their policies is
provided. In addition, through the monthly NAV Committee, the Adviser updates the Board on the performance of the underlying investments, market conditions and any other
relevant issues. Their adherence to the investment guidelines is monitored by the Company's Depositary. The Adviser has a widely experienced team with sufficient coverage
of staff should any key personnel depart. The Adviser is also part of a larger international group that specialises in alternative assets with a strong track record.
Key Performance Indicators
The Directors consider the key performance indicators for the Company to be:
i. Net asset value, NAV per Euro share and NAV total return per Euro share
Each month the NAV Review Committee reviews and compares the performance of the portfolio and the subsequent total net
assets of the Company, NAV per Euro share and NAV total return per Euro share.
The Company is targeting a mid-teen total return over the medium term which is intended to be delivered through a
combination of dividend payments and capital appreciation.
The NAV total return per Euro share has increased by 21.58% from inception.
ii. Quarterly dividends
The Company targeted a dividend in respect of the period from 1 January 2015 to 30 June 2016 equating to an 8% annualised
return and thereafter 2.5% a quarter equating to a 10% annualised return (in each case, based on a placing price of E1.00
per share).
In respect of the period from 1 July 2016 to 31 December 2016 the Company paid a dividend of E0.025 per quarter (equivalent
to a 10% annualised return).
iii. The premium/discount at which the Company's Euro shares trade
The Board monitors the share price of the Company's Euro shares and the prevailing premium or discount.
Further information on the above key performance indicators can be found under Summary of Key Financial Information.
Future Developments
It is the Board's intention that the Company will pursue its investment objective and investment policy as detailed in the
Executive Summary. Further comments on the outlook for the Company for the coming financial year and the main trends and
factors likely to affects its future development, performance and position are contained within the Chair's Statement and
the Adviser's Review.
Management Arrangements
The Company is a self-managed company. DFME acts as Adviser to the Company and, pursuant to the Advisory Agreement,
provides advice and assistance to the Company in connection with its subscriptions in the CSWs. BNP Paribas Securities
Services S.C.A. acts as Administrator, Company Secretary and Custodian to the Company.
The Board and Employees
The Board currently comprises two male and two female Directors. The Company has no employees and therefore there is
nothing further to report in respect of gender representation within the Company.
Full details of the Company's policy on Board Diversity can be found in the Corporate Governance Report.
Environmental, Employee, Social, Community and Human Rights Matters
The Company is a closed ended investment company with no employees, and therefore its environmental impact is minimal. The
Board notes that the companies in which BGCF invests may have a social, employee, community and human rights impact of
which the Board has no visibility or control.
Going Concern
The Directors have considered the Company's investment objective, risk management and capital management policies, its
assets and the expected income from its investments. The Directors are of the opinion that the Company is able to meet its
liabilities and ongoing expenses as they fall due and they have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. Accordingly, these financial statements have
been prepared on a going concern basis and the Directors believe it is appropriate to continue to adopt this basis for a
period of at least 12 months from the date of approval of these financial statements.
Viability Statement
The Directors have assessed the prospects of the Company over the four-year period to 24 April 2021. As detailed below, in
determining this period, the Directors have considered the impact that various severe scenarios might have on the Company's
cash flow and its ability to meet its liabilities. The Directors have also considered the market conditions, the Company's
current position, investment objective and strategy, the performance of the Adviser and the principal risks of the Company
as detailed in the Executive Summary.
BGCF's portfolio comprises the following categories of investments: (i) CLO Debt and CLO Income Notes securitised by BGCF,
(ii) a portfolio of predominantly senior secured loans and (iii) preference shares. The CLO investments in the portfolio
have a non-call period of approximately two years and cannot be redeemed until these expire.
In conjunction with the Adviser, the Directors have considered the impact that extreme market scenarios could have on BGCF.
The risk of a CLO default was also considered and it was noted that, if this did occur, it would be very unlikely to be a
sudden event and ordinarily sufficient forewarning would be provided through the downgrading of the CLO credit prior to it
entering a default.
The Directors also considered the other principal risks concerning unfavourable changes to global credit markets, including
political risks and that of Brexit, or regulatory, legal, tax and other compliance risks and the failure of service
providers, especially that of the Adviser. Whilst each of these risks are a principal risk and could have an impact on the
long term sustainability of the Company, the Directors concluded that each was sufficiently mitigated and would therefore
not impact the viability of the Company over a four-year period.
On the basis of the above, and in the absence of any unforeseen circumstances, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due
over the four-year period of their assessment. However, it is worth noting that there is no intention for the life of the
Company to be limited to this four-year period.
Director Biographies
All the Directors are non-executive. The Directors appointed to the Board as at the date of this Annual Report and
Financial Statements are:
Charlotte Valeur
Position: Chair of the Board and of the Remuneration and Nomination Committee
Date of appointment: 13 June 2014
Charlotte Valeur has more than 30 years of experience in financial markets and is the managing director of GFG Ltd, a
governance consultancy company.
She currently serves as a non-executive director on the boards of listed and unlisted companies including chair of Kennedy
Wilson Europe Real Estate Plc, a London-listed FTSE250 REIT, and of DW Catalyst Ltd, a LSE-listed investment company; a
non-executive director of JP Morgan Convertible Bond Income Fund, a LSE-listed investment company; and a non-executive
director of NTR Plc, a renewable energy company.
Ms Valeur was the founding partner of Brook Street Partners in 2003 and the Global Governance Group in 2009. Prior to this,
Ms Valeur worked in London as a director in capital markets at Warburg, BNP Paribas, Société Générale and Commerzbank,
beginning her career in Copenhagen with Nordea A/S. She is a member of the Institute of Directors and is regulated by the
Jersey Financial Services Commission.
With significant experience in international corporate finance, Ms Valeur has a high level of technical knowledge of
capital markets, especially debt / fixed income. Her non-executive board roles at a number of companies and her work as a
governance consultant have provided her with an excellent understanding and experience of boardroom dynamics and corporate
governance.
Philip Austin MBE
Position: Director
Date of appointment: 13 June 2014
Philip Austin spent most of his career in banking with HSBC and worked at a senior level in retail, commercial, corporate,
credit and head office. In 1993 he moved to Jersey where, from 1997 to 2001, he was deputy chief executive of the bank's
business in the offshore islands - Jersey, Guernsey and the Isle of Man.
In 2001, Mr Austin became the founding CEO of Jersey Finance Ltd, the body set up as a joint venture between the government
of Jersey and its finance industry, to represent and promote the industry at home and abroad. In 2006, Mr Austin joined
Equity Trust as CEO of its businesses in Jersey and Guernsey. Mr Austin left Equity Trust in 2009 to set up a portfolio of
non-executive directorships. These positions currently include City Merchants High Yield Trust Ltd, Royal London Asset
Management (CI) Ltd and Jersey Electricity Plc. His first-hand experience of running financial services businesses and his
tenure of a number of non-executive directorships of listed companies has provided him with a strong understanding of
regulatory and governance requirements.
Mr Austin is a Fellow of the Chartered Institute of Bankers and a Fellow of the Chartered Management Institute. In January
2016 he was awarded an MBE in the Queen's New Year's Honours list.
Gary Clark, ACA
Position: Chair of the Audit Committee and NAV Review Committee
Date of appointment: 13 June 2014
Gary Clark acts as an independent non-executive director for a number of boards, including Emirates NBD Fund Managers
(Jersey) Limited and Emirates Portfolio Management PCC. Until 1 March 2011 he was a managing director at State Street and
their head of Hedge Fund Services in the Channel Islands. Mr Clark, a Chartered Accountant, served as chairman of the
Jersey Funds Association from 2004 to 2007 and was managing director at AIB Fund Administrators Limited when it was
acquired by Mourant in 2006. This business was sold to State Street in 2010. Prior to this Mr Clark was managing director
of the futures broker, GNI (Channel Islands) Limited in Jersey.
A specialist in alternative investment funds, Mr Clark was one of several practitioners involved in a number of significant
changes to the regulatory regime for funds in Jersey, including the introduction of both Jersey's Expert Funds Guide and
Jersey's Unregulated Funds regime.
Joanna Dentskevich
Position: Chair of the Risk Committee
Date of appointment: 13 June 2014
Joanna Dentskevich has over 25 years of risk, finance and investment banking experience gained in leading global banks
worldwide, alternative investments and the offshore fiduciary industry. Ms Dentskevich moved to Jersey in 2008 and as well
as running her risk management advisory company sits on the boards of a number of other investment and financial services
companies.
Previously, Ms Dentskevich has been a director of risk at Morgan Stanley and Deutsche Bank and chief risk officer at a
London-based hedge fund.
Ms Dentskevich has a BSc Hons in Maths & Accounting and is a Chartered Member of the Chartered Institute of Securities &
Investment.
Directors' Report
The Directors present the annual report and audited financial statements for the Company for the year ended 31 December
2016.
Directors
The names of the persons who were Directors at any time during the year are set out in the "Director Biographies" section
of this annual report. Details of Directors' interests in shares can be found in the Directors' Remuneration Report.
Share Capital
The Company's share capital consists of an unlimited number of shares. As at 31 December 2016, the Company's issued share
capital consisted of 324,600,700 Euro shares excluding 6,719,100 Treasury shares (31 December 2015: 331,319,700 Euro
shares).
Share Repurchase Programme
At the 2015 Annual General Meeting ("AGM"), held on 18 June 2015, the Directors were granted authority to repurchase
49,664,823 Euro shares (being equal to 14.99% of the aggregate number of Euro shares in issue at the date of the AGM) for
cancellation or to be held as Treasury shares.
Under this authority, from 1 June 2016 to 23 June 2016, the Company has repurchased 6,719,000 Euro shares for a total cost
of E6,284,476.
At the 2016 AGM, held on 29 June 2016, the Directors were granted authority to repurchase 48,657,645 Euro shares (being
equal to 14.99% of the aggregate number of Euro shares in issue at the date of the AGM) for cancellation or to be held as
treasury shares.
This authority, which has not been used, will expire at the upcoming AGM. The Directors intend to seek annual renewal of
this authority from Shareholders.
Shareholders' Interests
As at 31 December 2016, the Company had been notified in accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules (which covers the acquisition and disposal of major shareholdings and voting rights), of the following
Shareholders that had an interest of greater than 5% in the Company's issued share capital:
Percentage of Voting Rights
BlackRock Inc 17.24%
Old Mutual Plc 15.40%
Blackstone Treasury Asia Pte Ltd 15.40%
FIL Limited 7.16%
CCLA Investment Management Ltd 5.10%
Seven Investment Management LLP 5.06%
Between 31 December 2016 and 24 April 2017, the following notifications were received:
Percentage of Voting Rights
Seven Investment Management LLP 4.91%
BlackRock, Inc.* 13.05%
Old Mutual Plc 14.79%
BlackRock, Inc.** 16.94%
* Notification received on 13 February 2017
** Notification received on 7 March 2017
Statement of Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each
aware, there is no relevant audit information of which the Company's auditors are unaware and that they have taken the
steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to
establish that the Company's auditors are aware of that information.
Greenhouse Gas Emissions
Please refer to the paragraph titled "Environmental, Employee, Social, Community and Human Rights Matters" within the
Strategic Report.
Events since Year End
Dividends
On 20 January 2017, the Company declared a dividend of E0.025 per Euro share in respect of the period from 1 October 2016
to 31 December 2016. This dividend was paid on 24 February 2017 to Shareholders on the register as at the close of business
on 3 February 2017.
On 24 April 2017, the Company declared a dividend of E0.025 per Euro share in respect of the period from 1 January 2017 to
31 March 2017. This dividend will be paid on 26 May 2017 to Shareholders on the register as at the close of business on 5
May 2017, and the corresponding ex-dividend date will be 4 May 2017.
Placing under Placing Programme
On 21 February 2017, the Company announced its intention to issue new Euro shares in the Company in response to current
demand from investors, under the placing programme by way of a placing of new shares, as detailed in the Company's
Prospectus dated 31 March 2016.
On 3 March 2017, the Company announced that the placing had closed, raising E72.8 million (before costs and expenses)
through the issue of 71,380,746 new Euro shares of no par value at a price of E1.02 per share. The placing price
represented a premium of approximately 2% to the unaudited NAV of 31 January 2017, adjusted for the dividend declared on 20
January 2017, which was for the period from 1 October 2016 to 31 December 2016.
On both the 8 March 2017 and the 14 March 2017, the Company announced that it had issued 1,000,000 new Euro shares of no
par value at a placing price of E1.03 per share raising E1.03 million (before costs and expenses) to satisfy continued
investor demand. The placing price represented a premium of approximately 3% to the unaudited NAV as at 31 January 2017,
which was for the period from 1 October 2016 to 31 December 2016.
On 29 March 2017, the Company announced the sale of 6,719,000 Euro shares out of treasury at a price of E1.0304 per share.
The sale raised gross proceeds of E6,923,258 and settlement took place on 31 March 2017.
All Euro shares issued subsequent to 31 December 2017 will be eligible for the dividend payable in respect of the period
from 1 January 2017 to 31 March 2017.
Charlotte Valeur
Chair
25 April 2017
Corporate Governance Report
Statement of Compliance with Corporate Governance
The Company, being traded on the SFS rather than having a Premium Listing on the Official List of the UKLA, is not subject
to Listing Rule 9.8.6 which requires companies to report against the UK Corporate Governance Code (the "UK Code").
However, recognising the importance of sound corporate governance, the Board has voluntarily committed to comply with both
the UK Code and the AIC Code of Corporate Governance for Jersey-domiciled member companies as published by the Association
of Investment Companies in July 2016 (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment
Companies (the "AIC Guide").
Having considered the principles and recommendations of the AIC Code, the Board believes the AIC Code addresses all of the
principles set out in the UK Code as well as additional principles and recommendations on issues that are of specific
relevance to the Company and will provide better information to Shareholders.
The Board can therefore confirm that during the year ended 31 December 2016, the Company has complied with the
recommendations of the AIC Code and the relevant provisions of the UK Code as detailed below.
For the reasons set out in the AIC Guide and given the size and nature of operations of the Company, in that it is a
self-managed investment fund with no executive employees and that the providers of outsourced services have their own
internal audit functions, the Board considers the below provisions of the UK Code not to be relevant and therefore has not
reported further on them:
i. The role of the Chief Executive;
ii. Executive directors' remuneration; and
iii. The need for an internal audit function.
The Company will provide details in the future if it considers them to be relevant.
Copies of the AIC Code, the AIC Guide and the UK Code can be found on the respective organisations' websites theaic.co.uk
and frc.org.uk.
The Board
The Board consists of four non-executive directors, the biographies of whom can be found in the Director Biographies
section.
The Board meets at least four times a year and is in regular contact with the Adviser, the Administrator and the Company
Secretary. Furthermore, the Board is supplied with information in a timely manner from the Adviser, the Company Secretary
and other advisers in a form and of a quality appropriate for it to be able to discharge its duties.
Duties and Responsibilities
The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the
Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:
i. Statutory obligations and public disclosure;
ii. Strategic matters and financial reporting;
iii. Risk assessment and management including reporting, compliance, governance, monitoring and control; and
iv. Other matters having a material effect on the Company.
The Board is responsible to Shareholders for the overall management of the Company. The Board has delegated the day-to-day
operational activities of the Company to the Adviser, Administrator and Company Secretary. The Board reserves the powers of
decisions relating to the determination of investment policy, the approval of changes in strategy, capital structure,
statutory obligations, public disclosure and the entering into any material contracts by the Company.
Board Attendance
The following table shows the number of meetings held by the Board and each committee for the year ended 31 December 2016,
as well as the number of attendances at each meeting.
Meeting Total Charlotte Philip Gary Joanna Dentskevich
Valeur Austin Clark
Quarterly Board 4 4 4 4 4
Ad-hoc Board 26 17 20 23 24
Audit Committee 6 6 6 6 5
Management Engagement Committee 2 2 2 2 2
NAV Review Committee 12 3 8 10 10
Remuneration and Nomination Committee 3 3 3 3 3
Risk Committee 4 4 4 4 4
Chair
The Chair is responsible for leadership of the Board, ensuring its effectiveness on all aspects of its role and setting its
agenda. The Chair is also responsible for ensuring that the Directors receive accurate, timely and clear information and
for effective communication with Shareholders.
Board Independence
For the purposes of assessing compliance with principle 1 and 2 of the AIC Code, the Board considers all of the current
Directors as independent of the Company's Adviser. However, Mr Austin is a director of Blackstone / GSO Debt Funds Europe
Limited, which is an affiliate of the Adviser, and, as such, is deemed not to be independent under the UKLA Listing Rules.
The Directors consider that there are no factors, as set out in principle 1 or 2 of the AIC Code, which compromise their
independence, other than stated above, and that they all contribute to the affairs of the Company in an adequate manner.
The Board reviews the independence of all Directors annually. The Company Secretary acts as secretary to the Board and
Committees and, in doing so, assists the Chair in ensuring that all Directors have full and timely access to all relevant
documentation, organises induction of new Directors, is responsible for ensuring that the correct Board procedures are
followed and advises the Board on corporate governance matters.
Board Evaluation
An external independent Board and Committee evaluation was undertaken by Value Alpha during the course of the year.
The evaluation consisted of:
· Observation of Board and Committee meetings;
· Extensive interviews with each of the Directors and Company Secretary and a meeting with the Adviser; and
· A feedback session with the Directors.
The interviews were conducted by means of a questionnaire which established the views of Directors on a number of issues
associated with Director and Board effectiveness. The interviews collected both quantitative and qualitative data and were
conducted on a confidential basis.
The evaluation considered the Board's balance of skills, experience, independence and knowledge, as well as its diversity,
including gender, how the Board works together as a unit, and other factors relevant to its effectiveness.
The evaluation concluded that areas of strong performance included: the Board's oversight of strategy; its ability to
deliver accountability to stakeholders, particularly its Shareholders; and exercise effective risk oversight; review its
governance arrangements; and to understand the legal and regulatory context within which it operates.
The evaluation found that the Board exercised independent oversight, challenged constructively, displayed sound judgement
and was versatile in being able to deal with the range of issues which came before it.
No significant recommendations were made which are required to be bought to the attention of Shareholders.
Committees of the Board
The Board has established five committees, an Audit Committee, a Management Engagement Committee, a NAV Review Committee, a
Remuneration and Nomination Committee and a Risk Committee. Each committee has formally delegated duties and
responsibilities within written terms of reference, which are available on the Company's website, blackstone.com/bglf,
under "Terms of Reference".
Audit Committee
The Audit Committee comprises all Directors, with the exception of Mr Austin, and is chaired by Mr Clark.
Mr Austin has the right to attend all Audit Committee meetings. The terms of reference state that the Audit Committee will
meet not less than three times a year and will meet the Auditor at least once a year. The report on the role and activities
of this committee and its relationship with the Auditor is contained in the Audit Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all Directors and is chaired by Charlotte Valeur.
The terms of reference state that the Management Engagement Committee shall meet not less than once a year and will have
responsibility for monitoring and reviewing the Adviser's performance and will recommend to the Board whether the continued
appointment of the Adviser is in the best interests of the Company and Shareholders.
NAV Review Committee
The NAV Review Committee comprises all Directors and is chaired by Gary Clark.
The terms of reference state that the NAV Review Committee shall meet at least one a month to review and consider the
Company's NAV calculation, fact sheet and applicable stock exchange announcements.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises all Directors and is chaired by Charlotte Valeur.
The terms of reference state that the Remuneration and Nomination Committee will meet not less than twice a year and shall
be responsible for all aspects of the appointment and remuneration of Directors. The remuneration duties of the committee
include determining and agreeing with the Board the framework or broad policy for the remuneration of the Directors and to
review its ongoing appropriateness and relevance.
The nomination duties of the committee include regularly reviewing the structure, size and composition of the Board,
including the balance of skills, experience, independence and knowledge on the Board, as well as identifying, nominating
and recommending, for approval of the Board, candidates to fill Board vacancies as they arise.
Director Re-Election and Tenure
The Remuneration and Nomination Committee has considered the question of a policy on Board tenure. It is strongly committed
to striking the correct balance between the benefits of continuity and those that come from the introduction of new
perspectives to the Board. As provided for in the AIC Code and in order to phase future retirements and appointments, as
all the Directors were appointed at the same time, the Board has not at this stage adopted any specific limits to terms,
but expects to rotate Board members over the coming years. The Board has adopted a policy whereby all Directors will be put
up for re-election every year. Accordingly, all Directors will be put forward for re-election at the forthcoming AGM. Each
of the Directors has demonstrated a strong commitment to the Company and the Board believes each Director's re-election
will be in the best interest of the Company.
Risk Committee
The Risk Committee comprises all Directors and is chaired by Joanna Dentskevich.
The terms of reference state that the Risk Committee shall meet at least four times a year. The activities of this
committee are outlined in the Risk Committee Report.
Board Diversity
The Board believes in and values the importance of a broad range of skills, experience and diversity, including gender, for
the effective functioning of the Board, all of which are considered when determining the optimum composition of the Board.
Internal Controls
The Board has applied principle 15 of the AIC Code by establishing a continuous process for identifying, evaluating and
managing the significant risks that the Company faces and as such regularly reviews the process put in place from the start
of the reporting period to the date of approval of this report. The Board is responsible for the Company's system of
internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of
failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material
misstatement or loss.
In compliance with principle 15 of the AIC Code, the Board regularly reviews the effectiveness of the Company's system of
internal control. The Board's monitoring covers all controls, including financial, operational and compliance controls and
risk management. It is based principally on reviewing reports from the Adviser and BGCF to consider whether significant
risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and
indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this
report. This assessment considers all significant aspects of internal control arising during the period covered by the
report. The Audit Committee assists the Board in discharging its review responsibilities.
During the course of its review of the system of internal control, the Board has not identified nor been advised of any
failings or weaknesses which it has determined to be significant. Therefore, a confirmation in respect of necessary actions
has not been considered appropriate.
The Board is also responsible for setting the overall investment policy and monitors the services provided by the Adviser
at regular Board meetings. The Board receives regular compliance reports from the Adviser, the Administrator and the
Company Secretary.
The Directors clearly define the duties and responsibilities of their agents and advisers, whose appointments are made
after due consideration, and monitor their ongoing performance. All of the Company's agents and advisers maintain their own
systems of internal control on which they report to the Board. The systems are designed to ensure effectiveness and
efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal
control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control.
It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against
the risk of material misstatement or loss.
The Directors are satisfied that the continued appointment of the relevant service providers are in the best interests of
the Shareholders.
The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by
the Administrator and Adviser, including their own internal controls and procedures, provide sufficient assurance that a
sound system of risk management and internal control, to safeguard the Shareholders' investment and the Company's assets,
is maintained. An internal audit function specific to the Company is therefore considered unnecessary. Full details are set
out in the Audit Committee Report.
The Company has appointed Fidante Partners Europe Limited (trading as Fidante Capital) and Nplus 1 Singer Advisory LLP as
its Joint Brokers. Together with these parties, the Adviser assists the Board in communicating with the Company's major
Shareholders.
On 9 June 2016, the Company appointed BNPP as its depositary for the purposes of Article 36 of the Alternative Investment
Fund Managers Directive ("AIFMD").
Risk Committee Report
Membership
The Risk Committee was established on 2 October 2014 and comprises Ms Dentskevich (Chair), Mr Austin,
Mr Clark and Ms Valeur.
Key Objectives
The Risk Committee has been established to assist the Board in its oversight of risk through ensuring the Company maintains
a high standard of risk identification, monitoring and management so as to minimise investment and any non-financial risks
not covered by the Audit Committee.
Responsibilities
During 2016, the Risk Committee reviewed its mandate to ensure effective operation in conjunction with the Audit Committee,
and as a result, its key responsibilities, amongst others, remain:
· ensuring the Company's compliance with its investment objectives, policies, restrictions and borrowing limits;
· ensuring that appropriate policies and reporting exists for the monitoring of the Company's key risks;
· developing and ensure a risk register documenting identified risks, their mitigants, likelihood and impact is
maintained, reviewed regularly by the Board with action points and newly identified risks being appropriately dealt with;
· defining risk review activities regarding investment decisions, transactions and exposures for approval by the
Board; and
· ensuring due regard is given to all regulations, codes, and laws that the Company is subject to.
Committee Meetings
In 2016, the Risk Committee met on four occasions to consider: risk reporting and monitoring, including the risk register;
newly identified risks, their impact and required mitigants; the integration of any new service provider such as our
Administrator and Depositary; the Board's risk appetite; and Principal Risks and Viability Statement.
Risk Monitoring
Being internally managed, the Company is responsible for both portfolio and risk management. However, due to the nature of
the investment and the limited ability to look through, traditional market and credit risk techniques do not apply at the
Company level.
Investment risk management and monitoring, to ensure the successful pursuance of our investment objective, is therefore
mainly through the Company's monthly NAV reporting process and the monitoring of investment restrictions and eligibility
criteria as carried out by our Depositary.
During the year, our auditors carried out a review of DFME's operating and control framework outlining their business
structure, governance (including compliance monitoring), roles and responsibilities and a detailed description of the key
control procedures. This was done at our request to obtain further assurance on the soundness of both DFME's control
environment and the reporting received, partly due to the Luxembourg restructuring and amendments to the Company's
Investment Objective and Policy, as stated in the Executive Summary. This document will form part of the basis of the
Directors' due diligence visit to DFME planned for 2017.
Risk Register and Risk Appetite Statement
The Risk Committee has also spent time introducing a methodology that will allow the Board to relate its significant
residual risks to their potential impact on the Company's strategy, the relevance and effectiveness of the mitigants in
place and the Company's risk appetite.
The result of this work has been the Risk Appetite Statement which, whilst still in development, is now being used to drive
the Risk Committee agenda, aid identification of new risks and areas needing further attention and for ongoing
consideration of Principal Risks. This oversight has certainly helped highlight key concerns around the integration of the
structural and investment objective changes into all our service provider's processes, controls and reporting.
Conclusion
In 2016, the Company's second full year of operation, the Committee, with the support of its advisors and Administrator,
worked hard to ensure all the progress made during the year was successfully and fluidly integrated into day-to-day
processes.
Joanna Dentskevich
Risk Committee Chair
25 April 2017
Statement of Directors' Responsibility
The Directors are responsible for preparing the Annual Report and Financial Statements, in accordance with applicable laws
and regulations.
The Companies Law requires the Directors to prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the Company at the end of the year and of the profit or loss of the Company for that year.
Under the Companies Law the Directors have prepared the Company's financial statements in accordance with the Disclosure
Guidance and Transparency Rules ("DTR") of the Financial Conduct Authority and with International Financial Reporting
Standards ("IFRS"), as adopted by the European Union (the "EU").
In preparing these financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them consistently;
· Make judgements and estimates that are reasonable and prudent;
· State whether applicable accounting standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the
financial position of the Company, and enable them to ensure that its financial statements are prepared in accordance with
applicable IFRS as adopted by the EU and comply with the Companies Law, as amended. They are also responsible for
safeguarding the assets of the Company. They have general responsibility for taking such steps as are reasonably open to
them to prevent and detect fraud and other irregularities.
Legislation in Jersey concerning the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
Each of the Directors, whose names are listed above, confirms that, to the best of that Director's knowledge and belief:
· The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the
assets, liabilities and financial positions of the Company as at 31 December 2016, and its profits for the year then
ended;
· The Strategic Report and the Directors' Report include a fair review of the information required by DTR 4.1.8
(indication of important events up to 31 December 2016 and a description of principal risks and uncertainties);
· The Strategic Report and the Directors' Report include a fair review of the information required by DTR 4.1.9 and
4.1.10 (analysis of the development and performance of the Company aided by the use of key performance indicators; and,
where appropriate, information relating to environmental factors);
· The Strategic Report and the Directors' Report include a fair review of the information required by DTR 4.1.11
(disclosure of important events that have occurred after 31 December 2016; future developments; financial risk management
objectives and policies and Company exposure to price, credit, liquidly and cash flow risk); and
· The annual report and financial statements, taken as a whole, provide the information necessary to assess the
Company's performance, position, business model and strategy and are fair, balanced and understandable.
Charlotte Valeur Gary Clark
Chair Audit Committee Chair
25 April 2017
Directors' Remuneration Report
Dear Shareholder,
This report provides relevant information in respect of the Directors' remuneration.
Directors' Remuneration
The Directors' remuneration for the year is as follows:
Annual Additional Total fee for the Total fee for the
Fee Fee year ended year ended
31 December 2016 31 December 2015
£ £ £ £
Ms Charlotte Valeur 50,000 10,000 60,000 50,000
Mr Philip Austin 35,000 10,000 45,000 35,000
Mr Gary Clark 35,000 15,000 50,000 40,000
Ms Joanna Dentskevich 35,000 15,000 50,000 40,000
Total Directors' Remuneration 205,000 165,000
Mr Clark and Ms Dentskevich receive an additional fee of £5,000 for the additional responsibilities and time commitment
involved in chairing the Audit and Risk Committees respectively.
The Directors received a one off payment fee of £10,000 each (31 December 2015: £Nil) due to the additional work carried
out during the year as a result of the Luxembourg restructuring and the publication of the prospectus.
Directors' remuneration is payable quarterly in arrears in Sterling.
No other remuneration or compensation was paid or is payable by the Company during the year to any of the Directors. There
has been no change to the Company's remuneration policy as detailed below.
The Company has no employees; accordingly, there is no difference in policy on the remuneration of Directors and the
remuneration of employees. No Director is entitled to receive any remuneration which is performance-related.
Remuneration Policy
Directors' fees are determined by the Remuneration and Nomination Committee under the terms of the remuneration policy (the
"Remuneration Policy") approved on 16 April 2015, as derived from the Company's Articles of Association.
No Director is involved in deciding their own remuneration and remuneration received reflects their duties,
responsibilities and the value of the Directors' time. As such the Remuneration Policy allows for the Chairs of the Board,
the Audit Committee and the Risk Committee to receive additional remuneration.
The Company does not provide pensions or other retirement or superannuation benefits, death or disability benefits, or
other allowances or gratuities to the Directors or specified connected parties. The Remuneration Policy also prohibits
payments to a Director for loss of office or as consideration for, or in connection with, his retirement from office.
Whilst the Remuneration Policy permits part of their fee to be paid in the form of fully-paid up shares in the capital of
the Company, the Directors' fees are not currently paid this way.
In addition, the Remuneration Policy allows for up to £5,000 per Director per year for reasonable travelling, hotel and
other expenses incurred in the course of performing their duties or from their performance of a special service on behalf
of the Company.
The limit for the aggregate fee payable to the Directors is £300,000 per annum.
Directors' Interests
The Directors held the following number of Euro shares in the Company:
As at 31 December 2016 As at 24 April 2017
Charlotte Valeur - 11,500
Philip Austin - -
Gary Clark 53,700 73,700
Joanna Dentskevich - -
Service Contracts and Policy on Payment of Loss of Office
No Director has a service contract with the Company. The Directors have each entered into a letter of engagement with the
Company setting out the terms of their appointment. Directors' appointments may be terminated at any time by giving three
month's written notice with no compensation payable upon leaving office for whatever reason.
Charlotte Valeur
Remuneration and Nomination Committee Chair
25 April 2017
Audit Committee Report
The Audit Committee comprises all Directors with the exception of Mr Austin. The Chair of the Audit Committee has recent
and relevant financial experience in accounting. The Audit Committee as a whole has competence relevant to the sector in
which the Company operates.
In addition to these formal meetings, the Audit Committee has worked with the Adviser and Auditor to document and assess
the operations and controls of BGCF to assess in particular what reliance the Audit Committee can place on the control
environment. The Chair has also had a number of discussions with the Auditors, the Adviser and the Administrator around the
annual audit process and both the Company's and BGCF's reporting and control of expenditure.
Role of the Audit Committee
The function of the Audit Committee is to ensure that the Company maintains high standards of integrity, financial
reporting and internal controls.
The Audit Committee's main roles and responsibilities include, but are not limited to, the following:
i. Monitoring the integrity of the financial statements;
ii. Report to the Board on any significant financial reporting issues and judgements;
iii. Reviewing and monitoring the effectiveness of the Company's risk management and internal control arrangements;
iv. Monitoring the statutory audit of the annual accounts of the Company and its effectiveness;
v. Reviewing the external auditor's performance, independence and objectivity;
vi. Making recommendations to the Board in relation to the appointment, re-appointment and/or removal of the external
auditor, the approval of the external auditor's remuneration and the terms of the engagement;
vii. Implementing policies surrounding the engagement of the external auditor to supply non-audit services, where
appropriate;
viii. Reviewing and challenging where necessary significant accounting policies and practices; and
ix. Reporting to the Board on how it has discharged its responsibilities.
How the Audit Committee Has Discharged Its Responsibilities
The Audit Committee met six times during the year. Representatives of the Company's Auditor and the Administrator were
invited to the meetings as appropriate.
Monitoring the Integrity of the Financial Statements Including Significant Judgements
i. We reviewed the Company's 2016 Half Yearly and Annual Reports prior to discussion and approval by the Board, and
the significant financial reporting issues and judgements which they contain and reviewed the external auditor's reports
thereon; and
ii. We reviewed the appropriateness of the Company's accounting principles and policies, and monitored changes to, and
compliance with, accounting standards on an ongoing basis.
After the year end we had further meetings and
i. We reviewed, prior to making any recommendations to the Board, the Annual Report and Audited Financial Statements
for the year ended 31 December 2016. In undertaking this review, we discussed with the Auditor, the Adviser and the
Administrator the critical accounting policies and judgements that have been applied.
The Auditor reported to the Committee on any misstatements that they had found during the course of their work and
confirmed that under ISA (UK and Ireland) no material amounts remained unadjusted.
As requested by the Board, we also reviewed the Annual Report and are able to confirm to the Board that, in our view, the
Annual Report, taken as a whole, was fair, balanced and understandable and provided the information necessary for
Shareholders to assess the Company's position, performance, business model and strategy.
Significant Accounting Matters
During the year the Committee considered key accounting issues, matters and judgements regarding the Company's financial
statements and disclosures including those relating to:
Significant Area How Addressed
Assessment of consolidation and related disclosure requirements The Audit Committee has considered compliance with the accounting treatment for investments relating to consolidation requirements for the Company and its investee entities and the related disclosures in accordance with the provisions of IFRS 10 and IFRS
12. The Audit Committee critically reviewed reports from the Adviser and Administrator, as well as evaluating and consulting with them and with the Auditor, and has concluded that the Company is not required to consolidate the Lux Subsidiary given the
Company meets the definition of an investment entity as defined in IFRS 10. Accordingly investments are recognised at fair value through profit or loss. Please see Note 2 in the financial statements for further details provided. Consideration was also
given to the disclosures provided with respect to BGCF including details of the underlying investments, leverage and financial instruments disclosures, including classification levels. Disclosures have been provided from the financial statements of BGCF to
provide details of the activities and operations of BGCF as a non-consolidated entity.
Significant Area How Addressed
Valuation of investments Following the completion of the restructuring, the investment in BGCF was transferred to a wholly owned subsidiary in Luxembourg. Under Luxembourg GAAP, investments are carried at cost less impairment. For the purposes of these financial statements, the
investment in the Lux Subsidiary is accounted for at fair value through profit or loss and the investment in BGCF held by the Lux Subsidiary is at fair value. Investments in BGCF are illiquid investments, not traded on an active market and are valued using
valuation techniques determined by the Directors and classified as Level 3 under IFRS 13 "Fair Value Measurement." Valuation is therefore considered a significant area and is monitored by the Board, the Audit Committee, the Adviser and the Administrator.
The Audit Committee receives and reviews reports on the processes for the valuation of investments. Following discussion, we were satisfied that the judgements made and methodologies applied were prudent and appropriate and that an appropriate accounting
treatment has been adopted in accordance with IFRS 13. Please see Notes 2, 6 and 10 in the financial statements for further details provided.
Assessment of Risks and Uncertainties
The risks associated with the Company's financial instruments, as disclosed in the financial statements, particularly in
Note 10, represent a key accounting disclosure. The Audit Committee and the Risk Committee critically review, on the basis
of input from the Service Providers, the process of ongoing identification and measurement of these risks disclosures.
Other Accounting Matters
During the year, the Committee received communications from the Service Providers and from the Auditor on other accounting
matters including tax, audit fees, anti-money laundering procedures and a representation letter.
Risk Management and Internal Controls
The Board as a whole is responsible for the Company's system of internal controls; however, the Audit Committee assists the
Board in meeting its obligations in this regard. The daily operational activities of the Company were delegated to the
Service Providers and as a result the Company has no direct internal audit function and instead places reliance on the
external and internal audit controls applicable to the Service Providers as regulated entities. However, the Audit
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