21 Jun 2011 16:52
ABERDEEN PRIVATE EQUITY FUND LIMITED
AUDITED ANNUAL FINANCIAL REPORT
for the year ended 31 March 2011
1. 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 2011. It has been another busy year for the Company, the Directors and Manager alike. As previously reported, we concluded the changes to the Company's name, its investment objective, policy and its structure in June 2010. We also initiated our first new investments under the Aberdeen management team. During the year we undertook a number of repurchases of the Company's shares in the market for cancellation and, subsequent to the year end, on 4 May 2011, we announced a Placing and Tender Offer.
Performance
During the period under review the net asset value ("NAV") per Sterling share rose by 4.4% to 93.8p and the share price rose by 25.9% to 68.0p. We note that the portfolio is largely (though not wholly) USD denominated and that the Dollar weakened against Sterling by 5.4% over the period under review. At the start of the financial year the Sterling shares had been trading at a discount to the underlying NAV of 40.0% and this level has tightened significantly to 27.2% at the year end marking a pleasing continuation of the trend that had started in 2009/2010. The Company does not have a Benchmark with which to compare performance, however, the Board regularly reviews the NAV performance both in absolute terms and in relative terms against the Company's peer group.
Placing and Tender Offer
The Company announced on 25 May 2011 revised proposals for a tender offer for up to the aggregate of (i) 41,771,066 shares, (representing one third of the Company's issued shares) and (ii) the number of shares placed by the Company's broker Matrix pursuant to the Placing, at a price of 67.5 pence per share. 88% of the Company's shareholders gave their irrevocable support to these proposals. The Company also proposed a change to the Company's Articles of Incorporation, whereby the Company will be required to propose an ordinary resolution for the continuation of the Company at its Annual General Meeting in 2013, and at every third Annual General Meeting thereafter.
Your Board believed that these Proposals would benefit shareholders as a whole, while at the same time affording an exit to the Company's principal shareholder at a fair price, representing a discount of approximately 25 per cent. to the last published Net Asset Value per share of the Company (as at 28 April 2011).
I am pleased to report to you that the proposals were duly approved by shareholders at the Extraordinary General Meeting of the Company held in Guernsey on 17 June 2011. Under the Tender Offer a total of 41,691,918 Shares were validly tendered and tender applications were therefore satisfied in full. In accordance with its commitment, the Company repurchased 17 million shares for cancellation. The remaining 24,691,918 Shares were successfully placed with third party investors by the Company's broker Matrix. Following implementation of the Tender Offer, the Company now has 108,313,199 shares in issue. The cancellation of the repurchased shares resulted in an uplift to net asset value per share of 3p.
Share Capital
During the year the Company purchased in the market for cancellation 11,053,537 Sterling shares, pursuant to the authority granted by shareholders. The Board is seeking to renew this shareholder authority to buy back up to 14.99% of the Company's share capital at the Annual General Meeting to be held on 12 September 2011 at 2.00 p.m.
Your Board and Company Secretary
On 14 March 2011, Ms Jennifer Wick advised me that she had decided to resign from the Board with immediate effect in order to concentrate her attention on clean energy investments. I would like to take this opportunity to reiterate our thanks to Jennifer for her contribution to the Company during her time on the Board and to wish her well for the future.
Following a lengthy due diligence process, conducted by the Manager and the Board, the Company appointed Ipes (Guernsey) Limited as Designated Manager, Company Secretary and Administrator with effect from 1 May 2011, replacing RBC Offshore Fund Managers Limited. The Directors took this opportunity to consider the engagement of an ongoing custodian and concluded that these services were no longer required at this time. In view of this, the Company issued a formal termination notice to the Company's custodian, Royal Bank of Canada, which will become effective on 1 July 2011.
Portfolio Commentary/Liquidity/Commitments
The Manager's significant efforts to refocus the Company as a pure-play private equity investment vehicle have effectively been completed over the course of the year. This has included recovering more than 10% of the value that the Company had historically invested in Madoff but has also required your Board to write down the remaining investment in Aarkad to nil, the property development money lender that we had already written down by 75%.
Fuller details on the Company's portfolio are given in the Manager's Report but I am pleased to inform investors that, in addition to Gores Capital Partners III, the Company has made a commitment to Northzone Ventures VI, a Nordic venture fund. These investments help to balance the maturity structure of the portfolio given that the investment periods of Oaktree OCM Opportunities VIIb, SVG Strategic Recovery Fund II and Greenpark International Investors III are all coming to their end during the year, or very close after it.
Following the tender offer, the Company still retains significant liquidity, not least because, in the first quarter of 2011, the Company saw a net return of capital for the first time since its incorporation in 2007. This was ahead of the Manager's conservative expectations and is an encouraging development so soon. With the likes of Silverlake's recent announcement on the proposed sale of their investment in Skype, I am confident that this is a sign of things to come.
At the end of March, the Company had outstanding commitments of $90.1 million and liquidity of $56.9 million.
Outlook
Following completion of the Tender Offer and Placing, I believe that the Company is well positioned going forward. The share holder register has been further diversified over the last year, at the same time utilising some of the Company's excess cash to give a significant uplift to NAV of 3p per Sterling share.
The prospects for the wider private equity market remain encouraging and, with the Company's exposure to overleveraged buyout deals from the height of the market at a low level, we are poised to benefit from this uplift in sentiment.
The Manager will continue to review appropriate prospects for investment in order to recycle the increasing distributions that the Company is seeing and to help deliver our objective of long-term capital growth. Given the maturity profile of the portfolio, it is not currently envisaged that any income or gains will be distributed by the Company by way of a dividend.
I look forward to meeting those of you who can attend the Annual General Meeting and to reporting to you again in November 2011 in respect of the six months ending 30 September 2011. In the meantime, shareholders will find regular monthly updates on the Company's portfolio on the Company's website, www.aberdeenprivateequity.co.uk.
Jonathan Carr
Chairman
21 June 2011
2. MANAGER'S REVIEW
Introduction
As at 31 March 2011, approximately 0.2% of the Company's NAV was invested in the legacy hedge funds, 69.9% was in Private Equity & Private Equity like funds, and 29.9% in cash. The Company held 21 funds in its portfolio at 31 March 2011 (Not including the fully written down investment in Aarkad Plc).
The closing comment in our Manager's Review last year alluded to the strength of the opportunity that we believed lay ahead for Private Equity. This was not hopeful optimism from a newly installed team, but rather, a considered view based on a number of soundings we had taken on the market and how we felt it was likely to behave over the shorter and longer terms.
The strength of the recovery (in sentiment and also in performance) in the shorter term has been marked, and to some extent outstripping our own expectations. More private equity exits occurred during the last 3 months of 2010 than during any other quarter and around half of US IPOs for 2011 may come from private equity firms.
From a research trip to the US West coast early last year we had seen the strength and quality of many companies quietly maturing within Private Equity portfolios, and had tracked their impending IPO plans through the US SEC s1 registration filing process. The uncertainty was always going to be just how much institutional demand - and also willingness to buy from Private Equity sellers - was out there. The investment propositions of these companies stacked up in their own right, with many having gone through extensive doctoring through the tough times, and emerging lean and fit for purpose. Others simply offered access to new and exciting themes or technologies that hadn't necessarily been available via the public markets. A good example here was the IPO of Tesla Motors in the US last year, which although not huge, was nonetheless considered an important private to public issue given excitement about the electric vehicle opportunity. Investors still had appetite for these businesses, however the greater appetite was to lie elsewhere.
Exiting through the M&A route surprised investors on the upside, but with hindsight probably shouldn't have. Corporate buyers, particularly in the technology sector, had also been assessing the strength of the emerging competition and (at the time of writing in May 2011) have gone on to acquire a number of private equity held companies, often in a bid to bolster tired technology or product lines in their own structures.
With that as the background, the Company's transition to a pure play Fund of Private Equity mandate appears to have been timely.
Private Equity Environment
In addition to the stronger visibility on exits, we have seen some encouraging signs of economic recovery, rising valuations, unprecedented levels of dry powder (as yet undeployed commitments from older not yet fully drawn private equity funds) and improved secondary market pricing. The latter is a key indicator of sentiment within the sector.
The industry is seeing distributions rising, and importantly for investor confidence, rising net cash flows (distributions over calls). We observed towards the end of 2010 that discounts in the secondary market were narrowing, and this trend has continued. At the end of the Company's financial year and since Q4 2009, the average discount at which all private equity funds have sold in the secondary market has risen from -37% to -15%, Buyout from -32% to -12% and Venture from -34% to -21%. These figures distort that some funds have moved to premiums to NAV, including some funds from GPs such as Bain, Bridgepoint and CVC.
Fundraising has though remained difficult for GPs. In a survey carried out by Preqin in December 2010, 42% of respondents said that they had made no new commitments to private equity in 2010, marginally up from the 2009 figure of 40% (source: Prequin Private Equity investor outlook, 2011). That same survey confirmed what we have known for some time, which is that many investors are at or above their target allocations to private equity. But the market has fragmented - there are as many institutions at zero or minimal weighting as there are who are at full exposure. UK small to medium corporate pension schemes' underweight positions being a good case in point.
Whatever the fragmentation in the market, those funds - such as Aberdeen Private Equity Fund Limited - with continuing active investment programmes, have some renewed faith in the asset class, with a third of investors expecting returns of 16% or more across their private equity portfolios over the next 3-5 years (with 87% of LPs expecting returns of 11% or more). The Manager's conservative expectations for that period lie somewhere closer to the latter.
On underlying company valuations, discipline appears to be holding across the sector, though we remain highly sceptical when reviewing performance of still live predecessor funds when managers are marketing successor vehicles.
Performance
We set out in the table at the foot of the page a summary of the monthly NAV and share price performance over the year. The portfolio is still relatively young and earlier vintages are still not yet fully mature. At the time of writing, cash flow from the portfolio is still negative on an annualised basis (i.e. cash calls from our investments still outweigh distributions) though we expect to move to a cash neutral position this year. We do not anticipate being in a position of being able to report 'normalised' year on year NAV performance for a couple of years i.e. the portfolio has yet to become a fully evergreen fund of funds, though it progresses well up the private equity J curve.
Hedging activity
There are no currency hedges in place and therefore holders are exposed to translational risk via predominantly USD priced assets. Under normal circumstances the Company's currency liabilities (uncalled commitments in local currencies) are matched on a pro rated basis with physical holdings of cash in that local currency. In May 2011 the Company announced a tender offer for up to one third of the Company's shares. In a worse case scenario - were no shares to be subsequently placed to new shareholders - the Company would have had to have funded this Sterling liability and it is for this reason that for the period of the tender offer, the Company converted the majority of its Dollar cash into Sterling in recognition of a potential imminent liability. Following the successful placing of shares, the remaining cash was reconverted to match to local currency exposure (predominantly Dollar).
As we commented last year, were hedging to be implemented we should note that there would be a risk of cash outflows to fund a currency hedge that has moved in the wrong direction, thus further impairing commitment cover levels, currently 63.2%. Notwithstanding this, the Manager regularly reviews the hedging strategy with the Board.
Portfolio review
Legacy non Private Equity investments
Aarkad, an investment made and classified by the Company's previous management team as a 'Transitional' asset (an asset that in theory was more liquid, designed to meet cash calls from Private Equity funds drawing down commitments), was fully written down during the year. We had already written the first 75% of the investment off in the previous year, and following guidance from the liquidators moved to write down the remaining 25%.
The Company remains invested in two illiquid former hedge fund holdings, both 'sidepockets' , which in aggregate account for just over 0.2% of the Company's NAV. At the time of writing, we have been notified that the smaller of the two, King Street Capital (approx $60k) has now been redeemed and the cash is in the process of being repatriated. The larger holding, Deephaven Global Multi Strategy Fund (approx $370k), has proven to be more illiquid than advised previously though we have seen some cash being returned over this last year. Again, at time of writing, Deephaven has sold White Energy, the largest holding and remaining claims include Lehman Bros trade claims amongst the biggest positions. We are expecting that they can exit most positions by the end of this year, which is disappointingly behind the schedule we expected this time last year.
Net Asset Value | Monthly | |||
per Sterling share | performance | Sterling | Monthly performance | |
(Sterling equivalent) | Sterling shares | share price | Sterling share price | |
pence | % | pence | % | |
March 2010 | 89.55 | 2.58% | 54.00 | 6.93% |
April 2010 | 87.96 | -1.78% | 58.00 | 7.41% |
May 2010 | 92.79 | 5.49% | 54.75 | -5.60% |
June 2010 | 89.17 | -3.90% | 51.25 | -6.39% |
July 2010 | 86.76 | -2.70% | 53.00 | 3.41% |
August 2010 | 87.31 | 0.63% | 62.75 | 18.40% |
September 2010 | 86.49 | -0.94% | 67.00 | 6.77% |
October 2010 | 86.63 | 0.16% | 70.00 | 4.48% |
November 2010 | 88.45 | 2.10% | 70.25 | 0.36% |
December 2010 | 88.85 | 0.45% | 70.00 | -0.36% |
January 2011 | 88.17 | -0.77% | 71.25 | 1.79% |
February 2011 | 87.68 | -0.56% | 70.25 | -1.40% |
March 2011 | 93.76 | 6.93% | 68.25 | -2.85% |
On a more positive note, throughout the year we continued to solicit interest in the portfolio's holdings in the former Madoff vehicles Defender and Rye Select, a process fraught with frustration as bidding intentions often failed to materialise as anything more concrete. We eventually reached an agreement with a US buyer who had offered the company a 10.18 cents in the dollar recovery (proceeds of $1,903,660, equating to an approx 1% uplift of the December NAV).
Private Equity and Private Equity like investments
The Company made two new commitments during the year. Gores Capital Partners III is a US based buyout fund, with the emphasis on operational turnaround. So far, they have made two investments into cable assets and a US envelope manufacturer, National Envelope. It is a great encouragement that these acquisitions follow the strategy we were expecting of Gores with the cable assets bought from Charter Communications and National Envelope purchased after Gores secured preferred bidder status in the bankruptcy process. Both of these assets will benefit from Gores' operational expertise with National Envelope in particular a source of cost savings as Gores rationalise their 77,000 SKUs (Stock Keeping Units)! Both assets were purchased at attractive prices.
Northzone Ventures VI is a Nordic based Venture fund to which we committed following extensive due diligence. We particularly like managers that have a proven edge in investing on the correct side of the 'hype curve', and Northzone have, in their previous fund, enjoyed notable success in backing Spotify, the online Music streaming service. At time of writing, the Northzone investment is already held at above cost owing to early investment success.
These new investments mean that around 25% of the outstanding commitments that the Company has have been sourced by the Manager.
The remainder of the private equity portfolio continues to progress well. More recent distributions have included money back from Oaktree OCM Opportunities Fund VIIb which returned $4.1m and also Greenpark International Investors III which has moved into distribution mode with two consecutive net capital payouts over the last quarters of the Company's financial year.
The wider Private Equity market has seen a return to dividend recaps, where debt is taken out by a portfolio company to pay a dividend to equity holders. This was common in the latter part of the last private equity cycle and many had, widely, assumed was a financial tool of the past. The Company has seen two of these in the holding in Thoma Bravo Fund IX. In the largest one, they have refinanced a software security services company and redeemed all of the preference shares they held returning 114% of the invested capital whilst retaining their 86% common share holding. Aberdeen's view of the prospects of further dividend recaps in the industry is sceptical, particularly in buyout where companies are more concerned about getting finance to repay maturing debt. In Growth Capital, however, it is more likely to be utilised.
The Company continues to see good performance from the venture segment of the portfolio. Tenaya Capital V paid a distribution relating to the Q4 sale of Wintegra, a network processor designer and manufacturer, and have significantly written up the value of one of their largest investments to 6.5x capital.
Investment by other GPs continued at a steady pace although one of note, and one of the larger investments in the year was by Terra Firma Capital Partners III who acquired RTR, a large Italian solar power generator from Terna (the Italian grid). It marks a further move into renewables for Terra Firma and is potentially an indication of future strategy following the earlier failures in Fund III. As usual, Aberdeen will monitor the investment closely. Terra Firma was of course in the news with the EMI debacle, losing control of it to Citigroup. The impact on the Company was negligible, it having already being written down within Terra Firma III last year.
Goldman Sachs Capital Partners VI IPO'd Kinder Morgan (KMI). They completed the IPO in February at $30.00, after taking a dividend recap, and as at the time of writing, the share price has fallen to $29.00 affecting the valuation of the remaining 22.6% they hold in the company.
Another source of exit was portfolio companies refinancing debt held by GPs, facilitated by improving operational performance. Thomas H Lee Parallel Fund VI and Silver Lake Partners III saw this from some of their investments.
Looking forward
Most of the prospects that we continue to log are in the buyout or growth equity area, with the former very much in the ascendancy and indicative of availability of low cost financing. Interestingly, Blackstone Group has commented this year that it has found the buyout market 'unappetizing' reasoning that they can't achieve the prices that are required. This tallies with our own view that the increased number of funds being raised in this arena is very likely to lead to deal prices being increased, or indeed lower quality deals being executed by the smaller players with cash to deploy. However many of these large groups may be being unduly pessimistic - the low cost of financing has also allowed many deals from previous vintages to be aggressively refinanced, though the major beneficiaries of cheap money are likely to be these large established buyout houses rather than their small boutique like competitors.
Buyout is very likely to be successful for cash deployed this year and into next, however any excessive returns are likely to see a return to the spotlight for the private equity industry. The Manager's view is that returns to investors are likely to remain muted, but with the better teams being able to deliver around 2x net. We continue to favour the smaller GPs, particularly where fees and alignments of interests with investors make us more comfortable.
We continue to remain less then enamoured with US mega buyout, and indeed most funds are going to struggle to deploy money into this area, with lenders still reticent for their low cost debt to be deployed into this area without compelling re-engineering or economic fundamentals, neither of which are present in abundance at this time. Mid market buyout is within our comfort zone, and we are now willing to look at those houses which are able to deploy away from defensive areas into potentially riskier areas, for example consumer or retail. From a geographic perspective we are also prepared to look away from the US into Europe, with a preference for a Pan European fund, rather than country specific, principally for diversification purposes.
Asia Pacific and the Indian subcontinent are two areas we are likely to focus on over the coming years, reflecting the changing fundamental nature of Asia's role in the world economy: whilst it will remain a manufacturer of cheap products for a western world encumbered by expensive and inflexible labour, it is becoming a consumer powerhouse in its own right with luxury goods, education and technology at the forefront of that demand. We often forget, for example, that Indonesia has a population of 240 million and a rapidly emerging middle class.
Although macro views are not the primary driver of asset allocation it's an important process, designed to identify themes, hazards and opportunities for us. We work closely with investment teams across the Aberdeen group and this process is complementary to our bottom up fund selection. We reviewed just under 400 discrete investment opportunities over the year to end 31 March 2011, and expect to review a similar number this year.
We remain confident of the continued recovery in the asset class, and expect to make further commitments over the coming quarters.
Alexander Barr
Aberdeen Asset Managers Limited
21 June 2011
3. 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; 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 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 auditors are unaware.
In accordance with Disclosure and Transparency Rule 4.1.12:
The Directors confirm to the best of their knowledge that:
a) 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
b) the Directors' Report 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 they face.
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 auditors are 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 auditors are 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 auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept 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
21 June 2011
4. SCHEDULE OF INVESTMENTSAs at 31 March 2011
Investment | 2010 | |||
Investments | called/cost{A} | Fair Value | % of | Fair value |
Private Equity & Private Equity Like Funds portfolio | US$'000 | US$'000 | NAV | US$'000 |
Aarkad PLC{B} | 7,100 | - | - | 1,386 |
Coller International Partners V L.P. | 7,402 | 10,034 | 5.3 | 7,496 |
DFJ Athena L.P. | 5,863 | 5,232 | 2.8 | 5,522 |
Goldman Sachs Capital Partners VI L.P. | 6,654 | 6,372 | 3.4 | 4,404 |
Gores Capital Partners III LP | 556 | 478 | 0.3 | - |
Greenpark International Investors III L.P. | 13,739 | 12,639 | 6.7 | 11,961 |
HIG Bayside Debt & LBO Fund II L.P. | 4,807 | 5,363 | 2.8 | 5,094 |
MatlinPatterson Global Opportunities Partners III L.P. | 7,284 | 5,828 | 3.1 | 6,103 |
Northzone Ventures VI LP | 2,679 | 2,969 | 1.6 | - |
Oaktree OCM Opportunities Fund VIIb L.P. | 9,386 | 17,374 | 9.2 | 18,188 |
Pine Brook Capital Partners L.P. | 2,703 | 3,489 | 1.8 | 3,374 |
PineBridge Latin America Partners II LP | 1,676 | 1,653 | 0.9 | 1,743 |
Resonant Music I L.P. | 4,816 | 4,552 | 2.4 | 3,021 |
Rho Ventures VI L.P. | 4,600 | 4,840 | 2.6 | 2,226 |
Silver Lake Partners III L.P. | 7,077 | 9,331 | 4.9 | 5,405 |
SVG Strategic Recovery Fund II L.P. | 9,110 | 9,399 | 5.0 | 5,968 |
Tenaya Capital V L.P. | 6,113 | 8,916 | 4.7 | 4,070 |
Terra Firma Capital Partners III L.P. | 12,228 | 5,775 | 3.1 | 3,391 |
Thoma Bravo Fund IX L.P. | 4,177 | 6,517 | 3.5 | 2,673 |
Thomas H Lee Parallel Fund VI L.P. | 9,254 | 10,934 | 5.8 | 6,896 |
________ | ________ | ________ | ________ | |
127,224 | 131,695 | 69.9 | ||
________ | ________ | ________ | ________ | |
Investment | 2010 | |||
Investments | called/cost | Fair Value | % of | Fair value |
Strategic Hedge Funds portfolio | US$'000 | US$'000 | NAV | US$'000 |
Deephaven Global Multi-Strategy Fund Ltd. | 521 | 373 | 0.2 | 1,137 |
King Street Capital Ltd. | 54 | 62 | - | 61 |
________ | ________ | ________ | ________ | |
575 | 435 | 0.2 | ||
________ | ________ | ________ | ________ | |
Total investments | 127,799 | 132,130 | 70.1 | |
________ | ________ | ________ | ________ | |
Fixed-term deposits | ||||
KBC | 23,121 | 12.3 | ||
Royal Bank of Scotland International | 25,488 | 13.5 | ||
Santander | 6,879 | 3.7 | ||
________ | ________ | |||
55,488 | 29.5 | |||
Cash | 1,397 | 8 | ||
Other liabilities less assets | (681) | (0.4) | ||
________ | ________ | |||
716 | 0.4 | |||
________ | ________ | |||
Net assets | 188,334 | 100.0 | ||
________ | ________ | |||
{A} Investments called/cost represents commitments drawdown less net distributions. | ||||
{B} Investment is in liquidation and although future realisations are possible the Company is not optimistic of any returns. | ||||
5. BUSINESS REVIEW
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
Risk
An investment in the Sterling shares is only suitable for investors capable of evaluating the risks (including the potential risk of capital loss) and merits of such investment and who have sufficient resources to bear any loss which may result from such investment. Furthermore, an investment in the Sterling shares should constitute part of a diversified investment portfolio. The risks described below are the principal risks which are considered by the Directors to be material to shareholders and potential investors in theCompany. Greater detail on these risks is provided in note18 to the financial statements.
Principal Risk Factors
Sterling Shares
The market price and the realisable value of the Sterling shares, as well as being affected by their underlying net asset value, also take into account supply and demand for the Sterling shares, market conditions and general investor sentiment. As such, the market value and the realisable value of the Sterling shares may fluctuate and vary considerably from the net asset value of the Sterling shares and investors may not be able to realise the value of their original investment.
Borrowings
The Company may borrow up to 25% of the NAV of the Company. Whilst the use of borrowings should enhance the total return on the Sterling shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Sterling shares.
Market Risks
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. Market risk comprises three elements, interest rate risk, currency risk and other price risk. Further details of these risks are disclosed in note 18 to the financial statements. Investment in private equity securities involves a greater degree of risk than that usually associated with investment in listed securities markets.
General
The Company does not have a fixed winding-up date and, therefore, unless shareholders vote to wind up the Company, shareholders will only be able to realise their investment through the market.
Taxation and Exchange Controls
Any change in the Company's tax status or in taxation legislation and/or the imposition of exchange controls (including the tax treatment of dividends or other investment income received by the Company) could affect the value of the investments held by the Company, affect the Company's ability to provide returns to shareholders or alter the post-tax returns to shareholders.
Investment Strategy and Performance
Inappropriate long-term investment strategies in terms of, inter alia, asset allocation, level of gearing or manager selection may result in underperformance of the Company against the companies within the peer group. The Board regularly considers the Company's investment Strategy and monitors performance at each Board meeting.
Portfolio Risks
Private equity investments are long-term in nature and they may take a considerable period to be realised. A substantial proportion of the Company's assets are invested in limited partnerships which invest in private companies. These unquoted investments are less readily realisable than quoted securities. Such investments may therefore carry a higher degree of risk than quoted securities. In valuing its investments in private equity funds or limited partnerships and in calculating its NAV, the Company relies to a significant extent on the accuracy of financial and other information provided by these funds to the Manager. Limited partnerships typically provide updated (unaudited) valuations on a quarterly or six-monthly basis.
6. STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2011
Year ended | Year ended | ||
31 March 2011 | 31 March 2010 | ||
Notes | US$'000 | US$'000 | |
Gains on investments | 11 | 16,445 | 14,007 |
Income | 4 | 415 | 147 |
Currency gains/(losses) | 1,447 | (14) | |
Investment management fee | 5 | (2,752) | (2,740) |
Other operating expenses | 6 | (925) | (2,272) |
____________ | ____________ | ||
Profit attributable to equity shareholders | 14,630 | 9,128 | |
____________ | ____________ | ||
Earnings per share (pence/cents) | |||
Sterling shares | 8 | 7.51 | 4.42 |
US Dollar shares | 8 | n/a | 3.88 |
____________ | ____________ | ||
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit attributable to equity shareholders" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised). | |||
All of the profit and total comprehensive income is attributable to the equity holders of the Company. There are no minority interests. | |||
All items in the above statement derive from continuing operations. | |||
The accompanying notes are an integral part of the financial statements. | |||
7. BALANCE SHEET
As at 31 March 2011
As at | As at | ||
31 March 2011 | 31 March 2010 | ||
Notes | US$'000 | US$'000 | |
Non-current assets | |||
Financial assets at fair value through profit or loss | 9 | 132,130 | 104,992 |
____________ | ____________ | ||
Current assets | |||
Cash and cash equivalents | 56,885 | 80,561 | |
Trade and other receivables | 12 | 186 | 140 |
____________ | ____________ | ||
57,071 | 80,701 | ||
____________ | ____________ | ||
Creditors: amounts falling due within one year | |||
Trade and other payables | 13 | (867) | (459) |
____________ | ____________ | ||
Net current assets | 56,204 | 80,242 | |
____________ | ____________ | ||
Net assets | 188,334 | 185,234 | |
____________ | ____________ | ||
Share capital and reserves | |||
Share capital | 14 | - | - |
Share premium | 14 | 247,229 | 258,759 |
Revenue reserves | 15 | (58,895) | (73,525) |
____________ | ____________ | ||
Equity shareholders' fund | 188,334 | 185,234 | |
____________ | ____________ | ||
Net asset value per share (pence/cents): | |||
Sterling shares | 16 | 93.76 | 89.55 |
____________ | ____________ | ||
US Dollar shares | 16 | n/a | 78.92 |
____________ | ____________ |
8. STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2011
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2010 | 258,759 | (73,525) | 185,234 |
Repurchase of shares | (11,530) | - | (11,530) |
Profit from operations | - | 14,630 | 14,630 |
____________ | ____________ | ||
Net assets at 31 March 2011 | 247,229 | (58,895) | 188,334 |
____________ | ____________ | ____________ | |
For the year ended 31 March 2010 | |||
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2009 | 258,759 | (82,653) | 176,106 |
Profit from operations | - | 9,128 | 9,128 |
____________ | ____________ | ____________ | |
Net assets at 31 March 2010 | 258,759 | (73,525) | 185,234 |
____________ | ____________ | ____________ |
9. STATEMENT OF CASH FLOWS
For the year ended 31 March 2011
Year ended | Year ended | |
31 March 2011 | 31 March 2010 | |
US$'000 | US$'000 | |
Cash flows from operating activities | ||
Profit for the year | 14,630 | 9,128 |
Net interest income from cash and cash equivalents | (365) | (1) |
Gains on investments | (18,988) | (12,771) |
Increase/(decrease) in trade and other payables | 408 | (51) |
Increase in trade and other receivables | (46) | (34) |
______________ | ____________ | |
Net cash outflow from operating activities | (4,361) | (3,729) |
Cash flows from investing activities | ||
Net interest income from cash and cash equivalents | 365 | 1 |
Purchases of investments | (29,373) | (21,196) |
Sales of investments | 21,223 | 51,176 |
______________ | ____________ | |
Net cash (outflow)/inflow from investing activities | (7,785) | 29,981 |
Cash flows from financing activities | ||
Repurchase of shares | (11,530) | - |
______________ | ____________ | |
Net cash outflow from financing activities | (11,530) | - |
______________ | ____________ | |
Net change in cash and cash equivalents for the year | (23,676) | 26,252 |
Cash and cash equivalents at beginning of the year | 80,561 | 54,309 |
______________ | ____________ | |
Cash and cash equivalents at the end of the year | 56,885 | 80,561 |
______________ | ____________ |
10. NOTES TO THE FINANCIAL STATEMENTS:
For the year ended 31 March 2011
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 US Dollar and Sterling shares were listed on 9 July 2007 whereupon the Company became a closed-ended investment company, domiciled in Guernsey. The US Dollar shares were subsequently converted into Sterling shares on 2 July 2010. The Company is authorised by the Guernsey Financial Services Commission. |
2. | Accounting policies | |||
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements; | ||||
(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. | ||||
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 in investments where management are required to exercise judgement in the adoption of critical estimates and judgements which can impact the carrying values of investments. | ||||
At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective. These have not been applied to these financial statements. The following are the Standards and amendments to existing Standards which are relevant but not yet effective. Other Standards, Interpretations and amendments to Standards which are not yet effective and not relevant have not been included. | ||||
- | IFRS 7 - Financial Instruments: Disclosures (effective for accounting periods beginning on or after 1 July 2011) | |||
- | IFRS 9 - Financial Instruments: Classification and Measurement (effective for accounting periods beginning on or after 1 January 2013) | |||
- | IAS 24 - Related Party Transactions (effective for accounting periods beginning on or after 1 January 2011) | |||
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company. | ||||
(b) | Financial instruments | |||
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. Forward contracts in a receivable position (positive fair value) are reported as financial assets at fair value through profit or loss. Forward contracts in a payable position (negative fair value) are reported as financial liabilities at fair value through profit or loss. | ||||
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 investment. 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. | ||||
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 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. | ||||
iv) | Investees | |||
The Company's investments in investees (that is, limited partnerships 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 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 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) | Cash and cash equivalents | |||
Cash and cash equivalents consist principally of cash on hand, demand deposits and short-term, highly liquid investments with maturities of three months or less. Cash and cash equivalents are valued at amortised cost, which approximates fair value. | ||||
(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. | ||||
(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 Company aims to make investments primarily denominated in US Dollars and to make returns to investors 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 and presentation 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 | |||
The expenses which are directly incurred only on the issue of shares are written off against the share premium account. | ||||
(h) | Statement of Cash Flows | |||
For the purpose of the Statement of Cash Flows, the Company considers balances due to and from banks as cash and cash equivalents. | ||||
3. | Segment information |
The Company engaged in three segments of business during the year: Investment in the Private Equity & Private Equity Like Funds portfolio, the Strategic Hedge Funds portfolio and the Transitional portfolio. The Investment Portfolio has been rebalanced so that there will only be one operating segment going forward; the Private Equity & Private Equity Like Funds portfolio. Information on the movement in value of the investments held in each portfolio is disclosed in Note 9 - Financial assets at fair value through profit or loss. | |
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 highly diversified portfolio of investments and no single investment accounts for more than 20% of the Company's income. |
2011 | 2010 | ||
4. | Income | US'000 | US'000 |
Net interest income from cash and cash equivalents | 415 | 147 | |
_________ | _________ | ||
415 | 147 | ||
_________ | _________ | ||
2011 | 2010 | ||
5. | Investment management fee | US'000 | US'000 |
Investment management fee | 2,752 | 2,740 | |
_________ | _________ | ||
The Company has an agreement with Aberdeen Asset Managers Limited for the provision of management services. The Manager is paid by the Company a monthly fee equal to one-twelfth of 1.5% of the NAV of the Company (before deduction of any performance fee). The fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears. At 31 March 2011 US$469,000 was outstanding (31 March 2010 - US$233,000). | |||
In addition, the Manager is entitled to a performance fee of 10% based on the total increase in the NAV of the Sterling shares at the end of each performance year (ending 31 March each year). For a performance fee to be paid, the Manager must achieve returns in excess of 8% (subject to a high watermark). No performance fee has been earned in the year ended 31 March 2011 (31 March 2010 - nil). | |||
2011 | 2010 | ||
6. | Operating expenses | US'000 | US'000 |
Directors' fees | 294 | 211 | |
Auditors' fees | 79 | 80 | |
Legal and professional fees{A} | 28 | 925 | |
Brokerage fees{B} | 122 | 524 | |
Printing and communication costs{A}{B} | 139 | 225 | |
Administration fees | 156 | 91 | |
Custody fees | 78 | 77 | |
Travel expenses | (9) | 72 | |
Directors' and officers' insurance | 29 | 57 | |
Bank charges | 9 | 10 | |
_________ | _________ | ||
925 | 2,272 | ||
_________ | _________ | ||
{A} The figures for 2010 include costs attributable to the consideration of strategic options and termination of the previous Manager. | |||
{B} Included in the total are cost attributable to the Company's agreement with Aberdeen Asset Managers Limited ('AAM') for the provision of marketing services 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 £75,000 (2010 - £nil) and the sum due to AAM at the year end was £22,000 (2010 - £nil). | |||
The Administrator is paid by the Company a fee not greater than 0.05% per annum of the NAV of the Company, subject to a minimum annual fee of £100,000 and a notice period of 90 days. At 31 March 2011 US$13,000 was outstanding (31 March 2010 - US$8,000). | |||
The Custodian was paid by the Company a fee not greater than 0.03% per annum on cash and deposits and 0.05% per annum on investments, subject to a minimum annual fee of £10,000. At 31 March 2011 US$7,000 was outstanding (31 March 2010 - US$6,000). As reported in the Chairman's Statement a notice of termination has been served upon the Custodian, to take effect from 1 July 2011. | |||
7. | Taxation |
The Company is domiciled in Guernsey. The Company is exempt from paying income tax in Guernsey. The Company is registered for taxation purposes in Guernsey where it pays an annual exempt status fee (which is currently £600) under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as amended). Whilst the States of Guernsey has announced that it is reviewing the system of company taxation in Guernsey, it is not anticipated that the tax status of the Company will be changed. |
8. | Earnings per share |
The basic earnings per share is calculated by dividing the returns attributable to shareholders by the weighted average number of shares in that class in issue during the period. There were no potentially dilutive shares in issue at 31 March 2011 (31 March 2010 - nil). |
2011 | 2010 | ||||
9. | Financial assets at fair value through profit or loss | US'000 | US'000 | ||
Cost at beginning of the year | 134,918 | 155,307 | |||
Additions | 32,283 | 21,196 | |||
Disposals | (24,133) | (44,333) | |||
Realised (losses)/gains on investments | (15,269) | 2,748 | |||
_________ | _________ | ||||
Cost at end of the year | 127,799 | 134,918 | |||
Unrealised gains/(losses) on investments | 4,331 | (29,926) | |||
_________ | _________ | ||||
Fair value at end of the year | 132,130 | 104,992 | |||
_________ | _________ | ||||
Private Equity | |||||
& Private Equity like | StrategicHedge | ||||
Funds portfolio | Fundsportfolio | Transitionalportfolio | Total | ||
31 March 2011 | US'000 | US'000 | US'000 | US'000 | |
Cost at beginning of the year | 111,947 | 12,771 | 10,200 | 134,918 | |
Additions | 32,283 | - | - | 32,283 | |
Disposals | (16,154) | (6,941) | (1,038) | (24,133) | |
Realised gains/(losses) on investments | (852) | (5,255) | (9,162) | (15,269) | |
_________ | _________ | _________ | _________ | ||
Cost at end of the year | 127,224 | 575 | - | 127,799 | |
Unrealised gains/(losses) on investments | 4,471 | (140) | - | 4,331 | |
_________ | _________ | _________ | _________ | ||
Fair value at end of the year | 131,695 | 435 | - | 132,130 | |
_________ | _________ | _________ | _________ | ||
Private Equity | |||||
& Private Equity like | StrategicHedge | ||||
Funds portfolio | Fundsportfolio | Transitionalportfolio | Total | ||
31 March 2010 | US'000 | US'000 | US'000 | US'000 | |
Cost at beginning of the year | 86,361 | 46,652 | 22,294 | 155,307 | |
Additions | 21,144 | 52 | - | 21,196 | |
Disposals | (2,120) | (35,436) | (6,777) | (44,333) | |
Reclassifications | 7,100 | (1,225) | (5,875) | - | |
Realised (losses)/gains on investments | (538) | 2,728 | 558 | 2,748 | |
_________ | _________ | _________ | _________ | ||
Cost at end of the year | 111,947 | 12,771 | 10,200 | 134,918 | |
Unrealised losses on investments | (13,026) | (6,700) | (10,200) | (29,926) | |
_________ | _________ | _________ | _________ | ||
Fair value at end of the year | 98,921 | 6,071 | - | 104,992 | |
_________ | _________ | _________ | _________ | ||
10. | Fair value hierarchy | ||||||
The three levels of the fair value hierarchy under the Amendment to IFRS 7 are described below: | |||||||
Level 1 - Unadjusted quoted prices 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 (as prices) or indirectly (derived from prices); and | |||||||
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). | |||||||
The levels in the fair value hierarchy within which the fair value measurement is categorised in its entirety are determined on the basis of the lowest level input that is significant to the fair value measurement 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 asset or liability. In evaluating the level at which the Company's investments have been classified, the Company has assessed factors including, but not limited to price transparency, the ability to redeem at NAV at the measurement date and the existence or absence of certain restrictions at the measurement date. | |||||||
The following tables summarises by level within the fair value hierarchy the Company's financial assets and liabilities at fair value as follows: | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
31 March 2011 | US'000 | US'000 | US'000 | US'000 | |||
Financial assets at fair value through profit and loss | - | 435 | 131,695 | 132,130 | |||
_______ | _______ | _______ | _______ | ||||
Level 1 | Level 2 | Level 3 | Total | ||||
31 March 2010 | US$'000 | US$'000 | US$'000 | US$'000 | |||
Financial assets at fair value through profit and loss | - | 6,071 | 98,921 | 104,992 | |||
_______ | _______ | _______ | _______ | ||||
A reconciliation of fair value measurements in Level 3 is set out in the following table: | |||||||
Private Equity | |||||||
& Private Equity like | |||||||
Funds portfolio | Transitionalportfolio | Total | |||||
Year ended 31 March 2011 | US'000 | US'000 | US'000 | ||||
Opening balance | 98,921 | - | 98,921 | ||||
Purchases | 32,283 | - | 32,283 | ||||
Sales | (16,154) | 1,038 | (15,116) | ||||
Total gains or losses on investments included in Statement of Comprehensive Income: | |||||||
- on assets sold | (852) | (1,038) | (1,890) | ||||
- on assets held at the year end | 17,497 | - | 17,497 | ||||
_________ | _________ | ________ | |||||
131,695 | - | 131,695 | |||||
_________ | _________ | ________ | |||||
Private Equity | |||||||
& Private Equity like | |||||||
Funds portfolio | Transitionalportfolio | Total | |||||
Year ended 31 March 2010 | US'000 | US'000 | US'000 | ||||
Opening balance | 61,506 | 10,687 | 72,193 | ||||
Purchases | 21,144 | - | 21,144 | ||||
Sales | (2,120) | (6,777) | (8,897) | ||||
Reclassifications | 7,100 | (5,875) | 1,225 | ||||
Total gains or losses on investments included in Statement of Comprehensive Income: | |||||||
- on assets sold | (538) | 558 | 20 | ||||
- on assets held at the year end | 11,829 | 1,407 | 13,236 | ||||
_________ | _________ | ________ | |||||
98,921 | - | 98,921 | |||||
_________ | _________ | ________ | |||||
11. | 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 investment in financial assets and financial liabilities shown in the Statement of Comprehensive Income is analysed as follows: | |||
2011 | 2010 | ||
£'000 | £'000 | ||
Unrealised gains on investments | 34,016 | 12,771 | |
Capital call expenses | (2,302) | (1,512) | |
Realised (losses)/gains on investments | (15,269) | 2,748 | |
_________ | _________ | ||
16,445 | 14,007 | ||
_________ | _________ | ||
Capital call expenses relate to management fees and other expenses paid to investees. | |||
2011 | 2010 | ||
12. | Trade and other receivables | US'000 | US'000 |
Prepayments | 184 | 128 | |
Accrued interest | 2 | 8 | |
Due from brokers | - | 4 | |
_________ | _________ | ||
186 | 140 | ||
_________ | _________ |
2011 | 2010 | ||
13. | Trade and other payables | US'000 | US'000 |
Management fees | 469 | 233 | |
Other expenses | 398 | 226 | |
_________ | _________ | ||
867 | 459 | ||
_________ | _________ |
2011 | 2010 | ||
14. | Share capital and share premium | US'000 | US'000 |
Share capital | |||
Management shares | |||
Authorised: 10,000 shares of £1.00 each | |||
2 Management shares of £1.00 each | - | - | |
_________ | _________ | ||
- | - | ||
_________ | _________ | ||
2011 | 2010 | ||
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 | |||
90,825,779 (2010 - 92,142,177) Sterling shares | 182,704 | 184,415 | |
78,383,753 (2010 - 76,116,060) US Dollar shares | 76,055 | 74,344 | |
_________ | _________ | ||
258,759 | 258,759 | ||
Conversion of 78,383,753 US Dollar shares into 45,540,957 Sterling shares | - | - | |
11,053, 537 (2010 - Nil) Sterling shares repurchased | (11,530) | - | |
_________ | _________ | ||
Closing balance of 125,313,199 Sterling shares | 247,229 | 258,759 | |
_________ | _________ | ||
The authorised share capital of the Company on incorporation was £10,000 divided into 10,000 shares of £1.00 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 £1.00 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. | |||
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. | |||
2011 | 2010 | ||
15. | Revenue reserves | US'000 | US'000 |
Opening revenue reserves | (73,525) | (82,653) | |
Profit from operations | 14,630 | 9,128 | |
_________ | _________ | ||
Closing revenue reserves | (58,895) | (73,525) | |
_________ | _________ | ||
Revenue reserves attributable to Management shares | - | - | |
Revenue reserves attributable to Sterling shares | (58,895) | (49,056) | |
Revenue reserves attributable to US Dollar shares | - | (24,469) | |
_________ | _________ | ||
(58,895) | (73,525) | ||
_________ | _________ |
16. | Net asset value |
The net asset value of each Sterling share is determined by dividing the net assets of the Company attributable to the Sterling shares of £117,492,000 (US$188,334,000) (2010 - £81,332,000 (US$123,372,000) by 125,313,199 (2010 - 90,825,779), being the number of Sterling shares in issue at the year end. | |
The net asset value of each US Dollar share is determined by dividing the net assets of the Company attributable to the US Dollar shares of £Nil (2010 - US$61,862,000) by Nil (2010 - 78,383,753), being the number of US Dollar shares in issue at the year end. |
17. | Commitments | ||||
The table below summarises commitments to the underlying investments of the Company at 31 March 2011. | |||||
Total | Outstanding | ||||
Currency | Commitments | Currency | Commitments | ||
'000 | US$'000 | '000 | US$'000 | ||
Coller International Partners V L.P. | 15,000 | 4,387 | |||
DFJ Athena L.P. | 10,000 | 3,075 | |||
Goldman Sachs Capital Partners VI L.P. | 15,000 | 6,936 | |||
Gores Capital Partners III L.P. | 10,000 | 9,088 | |||
Greenpark International Investors III L.P. | € 14,600 | 20,719 | € 2,146 | 3,046 | |
HIG Bayside Debt & LBO Fund II L.P. | 15,000 | 9,225 | |||
MatlinPatterson Global Opportunities Partners III L.P. | 10,000 | 1,800 | |||
Northzone Ventures VI L.P. | € 10,000 | 14,191 | € 7,808 | 11,081 | |
Oaktree OCM Opportunities Fund VIIb L.P. | 15,000 | 1,500 | |||
Pine Bridge Latin America Partners II L.P. | 2,611 | 415 | |||
Pine Brook Capital Partners L.P. | 10,000 | 6,057 | |||
Resonant Music I L.P. | 5,453 | 554 | |||
Rho Ventures VI L.P. | 10,000 | 5,400 | |||
Silver Lake Partners III L.P. | 15,000 | 7,258 | |||
SVG Strategic Recovery Fund II L.P. | £7,500 | 12,022 | £344 | 551 | |
Tenaya Capital V L.P. | 12,500 | 5,250 | |||
Terra Firma Capital Partners III L.P. | € 15,000 | 21,287 | € 4,230 | 6,003 | |
Thoma Bravo Fund IX L.P. | 10,000 | 3,700 | |||
Thomas H Lee Parallel Fund VI L.P. | 15,000 | 4,733 | |||
_________ | _________ | ||||
At 31 March 2011 | 238,783 | 90,059 | |||
_________ | _________ | ||||
18. | Financial risk management | ||||||||||
The Company maintains positions in a variety of investees and forward currency contracts 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 price 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 as detailed in the Corporate Summary in the Annual Report. Achievement of the investment objectives involves taking risks. The Manager exercises judgement based on analysis, research and risk management techniques when making investment decisions. Divergence from target asset allocations and the composition of the portfolio is monitored by the Board. | |||||||||||
The significant types of risk that the Company is exposed to are detailed below: | |||||||||||
a) | Capital management policies and procedures | ||||||||||
The Company's capital management objectives are: | |||||||||||
- to ensure the Company's ability to continue as a going concern, and | |||||||||||
- to provide an adequate return to shareholders | |||||||||||
The Company seeks to achieve these objectives by adopting the investment objectives set out in the Annual Report. | |||||||||||
b) | Market price risk | ||||||||||
The potential for changes in the fair value of the Company's investment portfolio is referred to as market price risk. Commonly used categories of market price 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 price 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, 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 price 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 outlined in the Annual Report; the Company's market price 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 price 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. During the twelve months to 31 March 2011, the value of Sterling increased by 5.67% (2010 - 5.83%) against the US Dollar. At 31 March 2011, a similar movement in the value of Sterling against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$533,000 (2010 - US$352,000). | |||||||||||
During the twelve months to 31 March 2011, the value of the Euro increased by 4.88% (2010 - 1.91%) against the U.S. Dollar. At 31 March 2011, a similar movement in the value of the Euro against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$1,817,000 (2010 - US$293,000). | |||||||||||
The table below summarises the Company's exposure in US Dollars to currency risks at the year end: | |||||||||||
As at 31 March 2011 | US'000 | £'000 | €'000 | Total | |||||||
Assets/liabilities | |||||||||||
Financial assets at fair value through profit or loss | 101,348 | 9,399 | 21,383 | 132,130 | |||||||
Cash and fixed deposits | 41,165 | 2 | 15,718 | 56,885 | |||||||
Other assets and liabilities | (681) | - | - | (681) | |||||||
_______ | ______ | ______ | _______ | ||||||||
Total at 31 March 2011 | 141,832 | 9,401 | 37,101 | 188,334 | |||||||
_______ | ______ | ______ | _______ | ||||||||
As at 31 March 2010 | US'000 | £'000 | €'000 | Total | |||||||
Assets/liabilities | |||||||||||
Financial assets at fair value through profit or loss | 83,673 | 5,967 | 15,352 | 104,992 | |||||||
Cash and fixed deposits | 80,493 | 68 | - | 80,561 | |||||||
Other assets and liabilities | (319) | - | - | (319) | |||||||
_______ | ______ | ______ | _______ | ||||||||
Total at 31 March 2010 | 163,847 | 6,035 | 15,352 | 185,234 | |||||||
_______ | ______ | ______ | _______ | ||||||||
iii) | Interest rate risk | ||||||||||
The Company is exposed to interest rate risk. The Company invests primarily in private equity and hedge funds that are non interest bearing investments, primarily subject to market price 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 represents 30% of the Company's NAV (31 March 2010 - 44%). As a result, the Company is subject to significant amounts of 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 2011 the Company's interest bearing assets and liabilities, all of which receive or pay interest at a variable rate, were as follows: | |||||||||||
2011 | 2010 | ||||||||||
US'000 | US'000 | ||||||||||
Cash and cash equivalents | 56,885 | 80,561 | |||||||||
________ | ________ | ||||||||||
Based on the cash and cash equivalents held at 31 March 2011, a movement of 1% in market interest rates would impact the Company's annual income by approximately US$569,000 per annum (2010 - US$806,000 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 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 net asset value 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 price 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 2011 and 31 March 2010, the following financial assets were exposed to counterparty credit risk: cash and cash equivalents and other receivables. 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 2011 and 31 March 2010 are noted below: | |||||||||||
2011 | 2010 | ||||||||||
Credit ratings for short-term notes | Rating | % of NAV | Rating | % of NAV | |||||||
Bank of Scotland | - | - | A1 | 11.07 | |||||||
BNP Paribas Group | - | - | Aa2 | 13.93 | |||||||
Deutsche Bank | - | - | Aa3 | 1.57 | |||||||
Royal Bank of Canada | - | - | Aaa | 2.16 | |||||||
Royal Bank of Scotland International | A1 | 12.28 | A1 | 13.60 | |||||||
KBC | Aa3 | 13.53 | - | - | |||||||
Santander | Aa2 | 3.65 | - | - | |||||||
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 accrued expenses and creditors. The Company will generally retain sufficient cash and cash equivalent balances to satisfy accrued expenses and creditors as they fall due. | |||||||||||
The Company's outstanding commitments are detailed in note 17. 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. | |||||||||||
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 2011, the Company does not have a loan facility in place (2010 - Nil). | |||||||||||
The table below sets forth the liquidity risk of the Company as at 31 March 2011 and 31 March 2010. All liabilities represent amounts falling due within 12 months. Amounts due within 12 months equal their carrying balances. | |||||||||||
Less than one year | Less than one year | ||||||||||
2011 | 2010 | ||||||||||
Financial liabilities | US'000 | US'000 | |||||||||
Trade and other payables | 867 | 459 | |||||||||
________ | ________ | ||||||||||
Based on communications with General Partners and the Manager's best estimates, the outstanding commitments are expected to be drawn down with the following maturity profile: | |||||||||||
2011 | 2010 | ||||||||||
Maturity | US$ million | US$ million | |||||||||
Less than 3 months | 12 | 12 | |||||||||
3-6 months | 12 | 12 | |||||||||
6-12 months | 22 | 22 | |||||||||
1-2 years | 22 | 32 | |||||||||
Greater than 2 years | 22 | 19 | |||||||||
________ | ________ | ||||||||||
90 | 97 | ||||||||||
________ | ________ | ||||||||||
As at 31 March 2011, an analysis of the financial instruments by category shows Assets at fair value through profit or loss of US$132,130,000 (2010 - US$104,992,000), Loans and receivables of US$57,071,000 (US$80,701,000) and Other financial liabilities totalling US$867,000 (2010 - US$459,000). | |||||||||||
19. | Controlling party |
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party. |
20. | Exchange rates | ||
As at 31 March 2011 and 31 March 2010, the exchange rates used (against US$) in preparation of these financial statements are as follows: | |||
2011 | 2010 | ||
US$ | US$ | ||
Sterling | 1.6029 | 1.5169 | |
Euro | 1.4191 | 1.3531 | |
21. | Geographical analysis | ||
The geographical allocation of investments at the year end was as follows: | |||
2011 | 2010 | ||
US$m | US$m | ||
North America | 78.2 | 106.3 | |
Europe | 33.2 | 10.5 | |
Global | 70.1 | 61.2 | |
Asia & Other | 6.9 | 7.3 | |
As at 31 March 2011, the geographical analysis of income shows the following: Europe US$415,000 (2010 - US$147,000). | |||
22. | Subsequent events |
Subsequent to the year end, on 25 May 2011 the Company announced revised terms for a Tender Offer and Placing as detailed in the Annual Report. On 17 June 2011 the Company announced that a total of 41,691,918 shares were validly tendered and tender applications were satisfied in full. In accordance with its commitment, the Company repurchased 17 million shares for cancellation and the remaining 24,691,918 shares were successfully placed by Matrix Corporate Capital LLP with third party investors. Following the conclusion of the Tender Offer and Placing there are 108,313,199 Sterling shares in issue. |
23. | Related party disclosure |
Up until 14 March 2011 Ms Wick was a Director of the Company. Ms Wick is chief investment officer of Consensus Business Group which acts as adviser to Elsina Limited, which until 17 June 2011 was a substantial shareholder of the Company. Other related party disclosures in respect of the Directors are disclosed elsewhere within the Financial Statements and Annual Report. |
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 2010. 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 2011 will be filed in due course.
The Annual General Meeting of the Company will be held at 2.00 p.m. on 12 September 2011 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 at the end of 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
21 June 2011