The Company’s investment objective is to achieve absolute total returns over the medium to longer term, principally through capital gains and supplemented with the generation of a longer term income yield. The Company targets a return on equity, after running costs, of between 12 per cent. and 15 per cent. per annum over the long term.
The Company will utilise the experience and expertise of the investment manager and the investment committee of the investment manager responsible for the Company’s portfolio, underpinned by a rigorous appraisal process and risk framework acceptable to the Board. The Company will have an active investing policy and will invest in assets that typically have a number of the following characteristics:
- investments that the investment manager believes can generate a 15 per cent. net internal rate of return over the medium to longer term;
- investments which are less liquid and which the investment manager believes beneﬁt from an illiquidity discount;
- private equity and smaller quoted companies where the investment manager believes that there is an opportunity for value creation through strategic, operational or management initiatives;
- companies that demonstrate strong underlying operational cashﬂow characteristics and attractive returns on invested capital; and
- alternative, specialist asset classes managed by the investment manager which target longterm, illiquid strategies on preferred terms.
The Company may invest in public or private securities; investments may be made in the form of, among other things, equity, equity-related instruments, derivatives and indebtedness. The Company may hold controlling or non-controlling positions and may invest directly or indirectly. The Company may also invest in the investment manager or members of its group, to beneﬁt from the potential growth of the investment manager.
The Company will make direct investments, typically with co-investors, in private equity opportunities which ﬁt the investment criteria, including pre-IPO, take private or more traditional private equity opportunities. The Company may lead or be part of a consortium holding inﬂuential or controlling stakes. Focus will typically be on companies with an enterprise value of less than £100 million where the managers believe that there is an ability to add value to the companies through active engagement.
The strategy seeks to exploit market inefﬁciencies which exist in quoted equity markets amongst smaller companies, which are typically under-researched, have relatively low trading liquidity and exhibit many of the same characteristics of privately held companies. The strategy aims for a high level of engagement with investee company stakeholders in order to identify market pricing inefﬁciencies and to support a clear equity value creation plan, typically over a three to ﬁve year investment horizon. Investments in quoted companies will, in most cases, be by means of coinvestment alongside other funds managed by the investment manager or members of its group targeting inﬂuential, but non-controlling, block stakes in companies with a market capitalisation typically below £250 million.
The Company may make indirect investments by means of passive co-investment or fund commitments in circumstances where it is able to procure preferred terms, and where the fund is managed by the investment manager, and net returns are expected to exceed the investment return objectives.
The portfolio will typically hold no more than 20 investments (including fund commitments) representing a signiﬁcant majority of the Company’s portfolio (typically, in excess of 80 per cent by value.). Capital will be allocated to predominantly private investments for direct investment or co-investment where the investment manager believes such investment is able to generate attractive risk adjusted returns over the medium to longer term. More than 50% of the portfolio, by reference to the net asset value of the Company at the time the investment is made, is expected to be invested in private equity opportunities (including in funds). The Company intends to invest in at least 10 company positions (whether directly or on a ‘look-though’ basis for investments in relation to fund investments) once the Company is fully invested (being the time at which the transition to this investment policy has been completed following realisation of legacy investments).
Sector and Geographic focus
The Company is not restricted to speciﬁc sectors. The Company’s assets will be predominantly invested in the United Kingdom, Europe and North America.
The Company will manage risk through appropriate portfolio construction and exposure to any single company, including those single ‘look through’ company positions within fund holdings, will be restricted to 15% of the Company’s net assets at the time the investment is made (by reference to the net asset value of the Company in the immediately preceding month). Any investment in securities issued by a single company or investment fund which represents more than 10 per cent. of the Company’s net assets at the time the investment is made will require the Board’s approval.
The Company intends to put in place a bank facility in order to manage working capital requirements, but will limit borrowing to no more than 25 per cent. of the net asset value of the Company measured at the time of borrowing.
Returns on investment
The intention is to return an amount in the region of 30 per cent. of annual cash realised proﬁts from investments made pursuant to the new investment policy and in so doing, to generate a dividend yield over the longer term.