Annual Financial Report
08/04/2022 07:00
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RNS Number : 7238H BMO Private Equity Trust PLC 08 April 2022
To: Stock Exchange For immediate release:
8 April 2022
BMO Private Equity Trust PLC
Annual Financial Report for the Year to 31 December 2021
Following the release on 25 March 2022 of the Company's preliminary results
announcement for the year ended 31 December 2021 (the "Preliminary
Announcement"), the Company announces that its annual report and financial
statements for the year ended 31 December 2021 (the "Annual Report and
Financial Statements") will be published today.
The information below, which is extracted in unedited full text from the
Annual Report and Financial Statements, is included in this announcement
solely for the purposes of compliance with Disclosure and Transparency Rule
6.3.5 and the requirements it imposes on issuers as to how to make public
annual financial reports. It should be read in conjunction with the
Preliminary Announcement. Together these constitute the material required by
DTR 6.3.5 to be communicated to the media in unedited full text through a
Regulatory Information Service. This material is not a substitute for reading
the full Annual Report and Financial Statements.
Portfolio Summary
Portfolio Distribution % of Total % of Total
As at 31 December 2021 2021 2020
Buyout Funds - Pan European* 9.6 10.0
Buyout Funds - UK 19.4 18.3
Buyout Funds - Continental Europe† 19.8 19.3
Secondary Funds 0.3 0.3
Private Equity Funds - USA 4.0 3.3
Private Equity Funds - Global 0.6 0.7
Venture Capital Funds 2.9 3.5
Direct - Quoted 0.1 -
Direct - Investments/Co-investments 43.3 44.6
100.0 100.0
* Europe including the UK.
† Europe excluding the UK
Ten Largest Holdings Total Valuation £'000 % of Total Portfolio
As at 31 December 2021
Inflexion Strategic Partners 19,674 4.1
Weird Fish 15,829 3.3
Sigma 14,835 3.1
August Equity Partners IV 12,901 2.7
TWMA 12,349 2.6
Ashtead 12,241 2.4
Coretrax 11,760 2.4
Aliante Equity 3 10,733 2.2
Ambio Holdings 10,641 2.2
Volpi Capital 10,214 2.1
131,177 27.1
Top ten holdings
Inflexion Strategic Partners
Investment type: Buyout funds - UK
Region: UK
Valuation basis: Percentage of fund value
In December 2019, the Company completed an investment into Inflexion Strategic
Partners (ISP). ISP is a limited partnership which holds interests in past and
future Inflexion funds, related entities, limited partnerships and
co-investments. The investment of £10m complements our existing diverse and
longstanding exposure to Inflexion's funds and gives us an even closer
alignment with arguably the leading mid-market private equity specialist in
the UK.
31
December 31 December
2021
2020
£'000
£'000
Residual
cost
9,230
9,657
Value
19,674
13,326
Weird Fish
Investment type: Direct investment
Region: UK
Valuation basis: Percentage of co-investment value
The Company has committed £6.2m to an investment in Weird Fish, a UK premium
lifestyle clothing brand serving men, women and children, with a core focus on
the 'stable and affluent' 35-55 age demographic. The investment is led by
Total Capital Partners, a lower mid-market manager investing both debt and
equity.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
5,151
5,151
Value
15,829
6,437
Sigma
Investment type: Direct Investment
Region: USA
Valuation basis: Percentage of co-investment value
The Company has committed $7.8m to an investment in Sigma, a leading
manufacturer of metal castings, precision machined components and
sub-assemblies for the US low voltage electrical product market. It is the
global leader by market share in electrical fittings, weatherproof boxes and
power transmission and distribution cut-outs and connectors. The investment is
led by Argand Partners, a US value investor focussed on the mid-market.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
6,433
6,436
Value
14,835
13,427
August Equity Partners IV
Investment type: Buyout Fund
Region: UK
Valuation basis: Percentage of fund value
In April 2016, the Company committed £10m to August Equity Partners IV, the
fourth in the series of funds managed by August Equity Partners. The Company
has committed to all three previous August Equity funds. AEP IV targets
investments in four core sectors: healthcare, social care, educational
services and technology enabled services in the UK.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
3,861
8,044
Value
12,901
9,193
TWMA
Investment type: Direct investment
Region: UK
Valuation basis: Percentage of co-investment value
The Company has committed £9.7m to TWMA, a drilling waste management
solutions provider. It has successfully pioneered and established a fully
comprehensive management solution for Offshore Services, Onshore Services,
Waste Handling & Transfer Services and Environmental Solutions. The
group's revenues are generated from treating and handling offshore oil and gas
drill cuttings and slops which must be removed efficiently and safely from the
drilling process, treated and disposed of.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
9,329
8,238
Value
12,349
7,574
Ashtead
Investment type: Direct Investment
Region: Global
Valuation basis: Percentage of co-investment value
The Company has committed £7.7m to an investment in Ashtead Technology, a
global rental and service provider of advanced subsea tools and systems for
the global offshore energy industry. Ashtead Technology's solutions are
applicable across a broad range of markets, including the oil and gas and
renewable energy sectors, and are used in the inspection, maintenance and
repair of field assets. The investment is led by Buckthorn, an emerging UK
based private equity manager established to invest on a deal by deal basis.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
3,688
7,777
Value
12,241
10,212
Coretrax
Investment type: Direct investment
Region: UK
Valuation basis: Percentage of co-investment value
The Company has committed £8.2m to an investment in Coretrax, a provider of
well integrity product and services crucial to the responsible and efficient
end of life well operations in the North Sea, Middle East (Saudi Arabia and
Abu Dhabi) and Malaysia. The investment is led by Buckthorn, an emerging UK
based private equity manager established to invest on a deal by deal basis.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
7,713
7,607
Value
11,760
11,514
Aliante Equity 3
Investment type: Buyout fund - Continental Europe
Region: Italy
Valuation basis: Percentage of fund value
Aliante III is the third vehicle raised by Aliante, an independent Italian
private equity manager that focuses on lower mid-market investments
predominately in the Italian food and beverage sector. Aliante III was raised
in late 2011 and is unusually structured as an Italian corporate. In February
2015, the Company committed €4m.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
2,642
3,237
Value
10,733
9,883
Ambio Holdings
Investment type: Direct investment
Region: USA
Valuation basis: Percentage of co-investment value
In October 2014, the Company invested $6 million in Ambio Holdings, a new
Delaware company established to hold 100% of the shares and assets of both
AmbioPharm and Ambio which were merged as part of a deal constructed by MVM, a
London/Boston based private equity manager which focuses on life science
investments in Europe and the US. Ambiopharm is a profitable pharmaceutical
contract manufacturing business, and Ambio is a drug development company
focused on high-value complex generic pharmaceuticals.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
-
-
Value
10,641
9,672
Volpi Capital
Investment type: Buyout Fund
Region: Northern Europe
Valuation basis: Percentage of fund value
Volpi Capital is a Northern and Western European focused buyout firm focusing
on investments in the information and tech-enabled services space. It invests
in companies with enterprise values between €50 million and €200 million.
The Company committed €7m to this fund, which closed at €187m in April
2018.
31 December 31 December
2021
2020
£'000
£'000
Residual
cost
5,507
5,394
Value
10,214
8,324
Portfolio Holdings
Investment Geographic Total % of Total Portfolio
Focus Valuation
£'000
Buyout Funds - Pan European
Volpi Capital Northern Europe 10,214 2.1
Apposite Healthcare II Europe 7,782 1.6
Astorg VI Western Europe 6,163 1.3
Stirling Square Capital II Europe 5,570 1.1
Apposite Healthcare III Europe 4,952 1.0
Agilitas 2015 Fund Northern Europe 4,194 0.9
ArchiMed II Western Europe 4,090 0.8
Silverfleet European Dev Fund Europe 2,923 0.6
TDR II Annex Fund Western Europe 270 0.1
TDR Capital II Western Europe 259 0.1
ArchiMed MED III Global 2 -
Total Buyout Funds - Pan European 46,419 9.6
Buyout Funds - UK
Inflexion Strategic Partners United Kingdom 19,674 4.1
August Equity Partners IV United Kingdom 12,901 2.7
Inflexion Buyout Fund IV United Kingdom 5,401 1.1
Inflexion Supplemental V United Kingdom 4,548 0.9
Inflexion Buyout Fund V United Kingdom 4,420 0.9
Primary Capital IV United Kingdom 4,114 0.9
GCP Europe II United Kingdom 4,090 0.9
Piper Private Equity VI United Kingdom 3,779 0.8
Inflexion Enterprise Fund IV United Kingdom 3,520 0.7
Apiary Capital Partners I United Kingdom 2,877 0.6
Kester Capital II United Kingdom 2,821 0.6
Inflexion 2010 Fund United Kingdom 2,804 0.6
Inflexion Supplemental IV United Kingdom 2,795 0.6
Horizon Capital 2013 United Kingdom 2,750 0.6
RJD Private Equity Fund III United Kingdom 2,628 0.5
FPE Fund II United Kingdom 2,299 0.5
Inflexion Partnership Capital I United Kingdom 2,101 0.4
August Equity Partners V United Kingdom 2,074 0.4
Dunedin Buyout Fund II United Kingdom 2,064 0.4
Inflexion Partnership Capital II United Kingdom 2,057 0.4
Inflexion 2012 Co-Invest Fund United Kingdom 1,446 0.3
Inflexion Enterprise Fund V United Kingdom 1,383 0.3
Piper Private Equity V United Kingdom 1,001 0.2
August Equity Partners III United Kingdom 5 -
Total Buyout Funds - UK 93,552 19.4
Buyout Funds - Continental Europe
Aliante Equity 3 Italy 10,733 2.2
Bencis V Benelux 8,507 1.8
Verdane Edda Nordic 4,880 1.0
Procuritas Capital IV Nordic 4,862 1.0
Summa II Nordic 4,587 0.9
DBAG VII DACH 4,524 0.9
Vaaka Partners Buyout Fund III Finland 4,505 0.9
Corpfin Capital Fund IV Spain 4,359 0.9
Capvis III CV DACH 4,138 0.9
Italian Portfolio Italy 3,918 0.8
Montefiore IV France 3,722 0.8
Procuritas VI Nordic 3,569 0.7
Chequers Capital XVII France 3,441 0.7
ARX CEE IV Eastern Europe 3,238 0.7
Procuritas Capital V Nordic 2,697 0.6
Summa I Nordic 2,637 0.5
Chequers Capital XVI France 2,076 0.4
DBAG Fund VI DACH 2,075 0.4
NEM Imprese III Italy 2,066 0.4
Capvis IV DACH 1,921 0.4
Vaaka II Finland 1,886 0.4
Avallon MBO Fund II Poland 1,289 0.3
Ciclad 5 France 1,286 0.3
Portobello Fund III Spain 1,256 0.3
Avallon MBO Fund III Poland 1,178 0.2
Montefiore V France 989 0.2
DBAG VIIB DACH 980 0.2
DBAG VIII DACH 906 0.2
Corpfin V Spain 891 0.2
PineBridge New Europe II Eastern Europe 779 0.2
Ciclad 4 France 744 0.2
DBAG Fund V DACH 423 0.1
DBAG VIIIB DACH 282 0.1
Gilde Buyout Fund III Benelux 88 -
N+1 Private Equity Fund II Iberia 61 -
Capvis III DACH 50 -
Herkules Private Equity III Nordic 6 -
Total Buyout Funds - Continental Europe 95,549 19.8
Investment Geographic Total % of
Focus Valuation Total
£'000 Portfolio
Private Equity Funds - USA
Blue Point Capital IV North America 7,434 1.5
Graycliff III United States 3,381 0.7
Blue Point Capital III North America 2,269 0.5
Camden Partners IV United States 2,397 0.5
Stellex Capital Partners North America 1,875 0.4
Graycliff IV North America 1,337 0.3
HealthpointCapital Partners III United States 436 0.1
Blue Point Capital II North America 249 -
Total Private Equity Funds - USA 19,378 4.0
Private Equity Funds - Global
PineBridge GEM II Global 1,561 0.3
F&C Climate Opportunity Partners Global 746 0.2
AIF Capital Asia III Asia 367 0.1
PineBridge Latin America II South America 116 -
Warburg Pincus IX Global 83 -
Total Private Equity Funds - Global 2,873 0.6
Venture Capital Funds
SEP V United Kingdom 8,381 1.7
MVM V Global 2,434 0.5
SEP IV United Kingdom 1,533 0.3
Pentech Fund II United Kingdom 867 0.2
Life Sciences Partners III Western Europe 519 0.1
SEP II United Kingdom 369 0.1
Environmental Technologies Fund Europe 62 -
Alta Berkeley VI Europe 59 -
SEP III United Kingdom 44 -
Total Venture Capital Funds 14,268 2.9
Direct - Quoted
Antero Global 276 0.1
Laredo Petroleum USA 24 -
Total Direct - Quoted 300 0.1
Secondary Funds
The Aurora Fund Europe 1,308 0.3
Total Secondary Funds 1,308 0.3
Direct - Investments/Co-investments
Weird Fish United Kingdom 15,829 3.3
Sigma United States 14,835 3.1
TWMA United Kingdom 12,349 2.6
Ashtead United Kingdom 12,241 2.4
Coretrax United Kingdom 11,760 2.4
Ambio Holdings United States 10,641 2.2
San Siro Italy 10,073 2.1
STAXS Netherlands 9,403 1.9
Jollyes United Kingdom 8,517 1.8
AccuVein United States 6,375 1.3
Swanton United Kingdom 6,254 1.3
Avalon United Kingdom 6,234 1.3
1Med Switzerland 5,885 1.2
JT IoT United Kingdom 5,750 1.2
Amethyst Radiotherapy Europe 5,617 1.2
ATEC (CETA) United Kingdom 5,102 1.1
Omlet United Kingdom 5,027 1.1
Agilico (DMC Canotec) United Kingdom 4,919 1.0
Cyberhawk United Kingdom 4,827 1.0
Contained Air Solutions United Kingdom 4,463 0.9
Prollenium North America 4,312 0.9
RGI Italy 4,149 0.9
Orbis United Kingdom 4,143 0.9
Dotmatics United Kingdom 4,121 0.8
Rosa Mexicano United States 3,729 0.8
Tier1 CRM Canada 3,600 0.7
Walkers Transport United Kingdom 3,529 0.7
Collingwood Insurance Group United Kingdom 3,241 0.7
Habitus Denmark 3,164 0.6
Babington United Kingdom 2,596 0.5
Calucem Croatia 2,547 0.5
PathFactory Canada 2,045 0.4
Vero Bioscience United States 1,276 0.3
TDR Algeco/Scotsman Europe 406 0.1
Stone Computers United Kingdom 282 0.1
Pet Network Eastern Europe 159 -
Total Direct - Investments/Co-investments 209,400 43.3
Total Portfolio 483,047 100.00
Principal Risks and Uncertainties and Risk Management
The principal risks and uncertainties faced by the Company are described below
and note 1 provides detailed explanations of the risks associated with the
Company's financial instruments:
Risk description: Economic, macro and political - External events such as
global financial/political instability including terrorism, war, climate
change, disease including pandemics, protectionism, inflation or deflation,
economic shocks or recessions, the availability of credit and movements in
interest rates could affect share prices and the valuation of investments.
Mitigation: Each regular meeting of the Board provides a forum to discuss with
the Managers the general economic environment and to consider any impact upon
the investment portfolio and objectives. The investment portfolio is
diversified across end markets and regions.
No change in overall risk in year
Risk description: Liquidity and capital structure - Failure by the Company to
meet its outstanding undrawn commitments could lead to financial loss for
shareholders. Failure to replace maturing borrowings or enter agreement for
new borrowings.
Mitigation: The Board receives a detailed analysis of outstanding commitments
at each meeting. A medium term cashflow projection is also provided. The
Company has a borrowing facility which will not expire until 19 June 2024. At
31 December 2021 the facility was composed of a €25 million term loan and a
£95 million revolving credit facility.
No change in overall risk in year
Risk description: Regulatory - Failure by the Company to meet or adhere to
regulatory/ legislative standards. Loss of investment trust status. Regulatory
or taxation changes resulting in disincentives or market barriers limiting
demand for the Company's shares.
Mitigation: At each Board meeting the Company's legal counsel provides an
update on regulatory and legislative developments. The Company employs BMO
Asset Management as Company Secretary.
No change in overall risk in year.
Risk description: Personnel issues - Loss of key personnel from the BMO
Private Equity team.
Mitigation: Regular meetings between the Board and senior staff of the
Manager. There is a six month notice period to the investment management
agreement.
No change in overall risk in year.
Risk description: Fraud and cyber risks - Theft of Company and customer assets
or data, including cyber risks.
Mitigation: The Depositary oversees custody of investments and cash in
accordance with the requirements of the AIFMD. The Manager has extensive
internal controls in place. The Board receives a regular report on its
effectiveness. The Board also receives an annual internal controls report from
the Registrar, and the Depository.
No change in overall risk in year.
Risk description: Market- Poor investment selection and/or performance against
other assets classes and peer group. Increased share price discount diminishes
attractiveness of Company to investors. A premium could represent a lost
opportunity to issue shares.
Mitigation: At each meeting of the Board, the Directors monitor performance
against peer group and returns from the FTSE All Share Index. Market
intelligence is maintained via the Company's broker, N+1 Singer and the
provision of shareholder analyses.
No change in overall risk in year.
Risk description: ESG - Failure to respond to increasing investor focus on
ESG. Stranded assets within the investment portfolio.
Mitigation: The Manager has one of the longest established and largest
Responsible Investment teams in the City. The BMO Private Equity Team
undertake an annual survey of the ESG practices of underlying portfolio fund
managers.
No change in overall risk in year.
Risk description: Operational - Failure of the Manager's accounting systems
or disruption to the Manager's or service providers' business or business
continuity failure could lead to an inability to provide accurate reporting
and monitoring leading to a loss of Shareholder confidence.
Mitigation- The Board receives annual internal controls reports from the
Manager, Registrar and the Depositary. The administration system employed by
the Manager is Efront. This is an industry wide investment and accounting
package used to record transactions. Legal agreements/ engagement letters in
place with the Manager and service providers.
No change in overall risk in year.
Rolling five year viability assessment and statement
The 2018 UK Corporate Governance Code requires a Board to assess the future
prospects for the Company, and report on the assessment within the Annual
Report.
The Board considered that a number of characteristics of the Company's
business model and strategy were relevant to this assessment:
• The Board looks to long-term performance rather than short term
opportunities.
• The Company's investment objective, strategy and policy, which
are subject to regular Board monitoring, mean that the Company is invested in
a well-diversified portfolio of funds and direct investments and that the
level of borrowings is restricted.
• The Company has a single class of Ordinary Shares.
• The Company's business model and strategy is not time limited.
Also relevant were a number of aspects of the Company's operational
arrangements:
• The Company has title to all assets held.
• The Company's five-year borrowing facility is composed of a
€25 million term loan and a £95 million multi-currency revolving credit
facility. The interest rate payable is variable.
• The Company aims to pay quarterly dividends with an annual yield
equivalent to not less than four per cent of the average of the published net
asset values per ordinary share for the previous four financial quarters, or
if higher in pence per share the highest quarterly dividend previously paid.
Dividends can be funded from the capital reserves of the Company.
• Revenue and expenditure forecasts and projected cash
requirements are reviewed by the Directors at each Board Meeting.
Given the current volatility in stock markets and the economic disruption
arising from the COVID-19 pandemic, inflation concerns and the conflict in
Ukraine the Directors also considered detailed cashflow projections modelling
various scenarios on the future drawdowns to be paid and distributions to be
received by the Company. These projections were adjusted to consider various
plausible scenarios and took account of possible impacts upon the future NAV
of the Company and the ability of the Company to meet its loan covenants. The
Board concluded that there was a low probability that a covenant breach
related to capacity to meet cashflow requirements would occur. Furthermore the
Board has considered the remedies available if it appears that a covenant
breach is possible. Having considered the likelihood of the events which could
cause a covenant breach and the remedies available to the Company, the
Directors are of the view that the Company is well placed to manage such an
eventuality satisfactorily.
In addition, the Board carried out a robust assessment of the principal risks
which could threaten the Company's objective, strategy, future performance,
liquidity and solvency. These risks, mitigating actions in place to ensure the
Company's resilience and the processes for monitoring risks are set out on
page 28 and in Note 16 of the accounts. These principal risks were identified
as relevant to the viability assessment.
The Board took into account the forecasted cash requirements of the Company,
the long-term nature of the investments held, the existence of the borrowing
facility and the effects of any significant future falls in investment values
on the ability to repay and re-negotiate borrowings, maintain dividend
payments and retain investors.
These matters were assessed over a five year period to April 2027, and the
Board will continue to assess viability over five year rolling periods, taking
account of foreseeable severe but plausible scenarios. Note 16 to the
financial statements includes an analysis of the potential impact of movements
of interest rates and foreign exchange on net asset value. A rolling five year
period represents the horizon over which the Directors believe they can form a
reasonable expectation of the Company's prospects, balancing the Company's
financial flexibility and scope with the current uncertain outlook for
longer-term economic conditions affecting the Company and its Shareholders.
Based on their assessment, and in the context of the Company's business model,
strategy and operational arrangements set out above, the Board has a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the five year period to April
2027. For this reason, the Board also considers it appropriate to continue
adopting the going concern basis in preparing the Report and Accounts.
Statement of Directors' Responsibilities
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with UK adopted international accounting
standards and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements and have elected to prepare the Company financial
statements in accordance with UK adopted international accounting standards.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for the Company for that
period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with UK
adopted international accounting standards, 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
• prepare a Directors' report, a strategic report and Directors'
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
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. The Directors are responsible for ensuring that the
Annual Report and accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors' responsibilities pursuant to DTR4
• The financial statements have been prepared in accordance with
the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit and loss of the Company.
• The Annual Report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that they
face.
On behalf of the Board
Mark Tennant
Chairman
Notes
1. Financial instruments
The Company's financial instruments comprise equity investments, cash
balances, a bank loan and liquid resources including debtors and creditors. As
an investment trust, the Company holds a portfolio of financial assets in
pursuit of its investment objective. From time to time the Company may make
use of borrowings to fund outstanding commitments and achieve improved
performance in rising markets. The downside risk of borrowings may be reduced
by raising the level of cash balances held.
The Company's investing activities expose it to various types of risk that are
associated with the financial instruments and markets in which it invests. The
most important types of financial risk to which the Company is exposed are
market price risk, interest rate risk, liquidity and funding risk, credit risk
and foreign currency risk.
The nature and extent of the financial instruments outstanding at the balance
sheet date and the risk management policies employed by the Company are
discussed below.
Market price risk
The Company's strategy for the management of market price risk is driven by
the Company's investment policy. The management of market price risk is part
of the investment management process and is typical of private equity
investment. The portfolio is managed with an awareness of the effects of
adverse price movements through detailed continuing analysis, with an
objective of maximising overall returns to shareholders. Investments in
unquoted stocks, by their nature, involve a higher degree of risk than
investments in the listed market. Some of that risk can be, and is, mitigated
by diversifying the portfolio across geographies, business sectors and asset
classes, and by having a variety of underlying private equity managers. New
private equity managers are only chosen following a rigorous due diligence
process. The Company's overall market positions are monitored by the Board on
a quarterly basis.
Interest rate risk
Some of the Company's financial assets are interest bearing and, as a result,
the Company is subject to exposure to fair value interest rate risk due to
fluctuations in the prevailing levels of market interest rates.
When the Company retains cash balances the majority of the cash is held in
deposit accounts. The benchmark rate which determines the interest payments
received on cash balances is the bank base rate for the relevant currency.
Liquidity and funding risk
The Company's financial instruments include investments in unlisted equity
investments which are not traded in an organised public market and which
generally may be illiquid. As a result, the Company may not be able to
liquidate quickly some of its investments in these instruments at an amount
close to their fair value in order to meet its liquidity requirements,
including the need to meet outstanding undrawn commitments or to respond to
specific events such as a deterioration in the creditworthiness of any
particular issuer.
The Company's listed securities are considered to be readily realisable.
The Company's liquidity risk is managed on an ongoing basis by the Manager in
accordance with policies and procedures in place. The Company's overall
liquidity risks are currently monitored on a quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The Manager has in place a monitoring procedure in respect of
counterparty risk which is reviewed on an ongoing basis. The carrying amounts
of financial assets best represents the maximum credit risk exposure at the
balance sheet date, hence no separate disclosure is required.
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be small due to the short settlement period involved and the high credit
quality of the brokers used. The Manager monitors the quality of service
provided by the brokers used to further mitigate this risk.
All the listed assets of the Company (which are traded on a recognised
exchange) are held by JPMorgan Chase Bank, the Company's custodian. The
Company has an ongoing contract with the Custodian for the provision of
custody services. The contract was reviewed and updated in 2014. Details of
securities held in custody on behalf of the Company are received and
reconciled monthly. The Depositary has regulatory responsibilities relating to
segregation and safe keeping of the Company's financial assets, amongst other
duties, as set out in the Directors' Report. The Board has direct access to
the Depositary and receives regular reports from it.
To the extent that the Manager carries out management and administrative
duties (or causes similar duties to be carried out by third parties) on the
Company's behalf, the Company is exposed to counterparty risk. The Board
assesses this risk continuously through regular meetings with the management
of BMO (including the Fund Manager). In reaching its conclusions, the Board
also reviews BMO's annual Audit and Assurance Faculty Report.
The Company's cash balances are held by a number of counterparties. Bankruptcy
or insolvency of these counterparties may cause the Company's rights with
respect to the cash balances to be delayed or limited. The Manager monitors
the credit quality of the relevant counterparties and should the credit
quality or the financial position of these counterparties deteriorate
significantly the Manager would move the cash holdings to another bank.
Foreign currency risk
The Company invests in overseas securities and holds foreign currency cash
balances which give rise to currency risks. It is not the Company's policy to
hedge this risk on a continuing basis but it may do so from time to time. The
Company has a multi-currency revolving credit facility which allows it to be
drawndown in multiple currencies. There were no currency forwards open at the
year end.
2. Copies of the Annual Report and Financial
Statements will be sent to shareholders and will be available at the Company's
registered office, Quartermile 4, 7a Nightingale Way, Edinburgh, EH3 9EG and
on its website www.bmoprivateequitytrust.com
(http://www.bmoprivateequitytrust.com)
For more information, please contact:
Hamish Mair (Investment Manager) 0131 718 1000
Scott McEllen (Company Secretary) 0131 718 1000
hamish.mair@bmogam.com (mailto:hamish.mair@bmogam.com) /
scott.mcellen@bmogam.com (mailto:scott.mcellen@bmogam.com)
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