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Final Results

19 Jun 2020 10:30

RNS Number : 5085Q
JPMorgan Global Core Real Assets Ld
19 June 2020
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

 

JPMORGAN GLOBAL CORE REAL ASSETS LIMITED

 

FINAL RESULTS FOR THE PERIOD FROM 22ND FEBRUARY 2019 TO 29TH FEBRUARY 2020

 

Legal Entity Identifier: 549300D8JHZTH6GI8F97

Information disclosed in accordance with the DTR 4.1.3

 

CHAIRMAN'S STATEMENT

I am delighted to present the first Annual Report & Financial Statements for JPMorgan Global Core Real Assets Limited (the 'Company' or 'JARA'), the newly-listed closed-ended investment company incorporated on 22nd February 2019 and registered under the laws of Guernsey.

Launch

Your Company obtained a premium listing on the London Stock Exchange on 24th September 2019 following a successful initial public offering ('IPO') in which 148,974,889 ordinary shares were issued. This was made up of 97,521,273 ordinary shares issued under the placing and 51,453,616 shares issued under the intermediaries offer and offer for subscription.

The Initial Issue Price was 100.0p per ordinary share, with an opening Net Asset Value ('NAV') of 99.0p per ordinary share, meaning the opening net assets of the Company were £147.5 million.

Objective and Features

The Company's objective is to provide shareholders with stable income and capital appreciation from exposure to a globally diversified portfolio of core real assets, being those real assets that offer reliable, highly forecastable, long term cash flows. These are focused on unlisted assets held in private funds investing in the global infrastructure, real estate and transportation sectors alongside a more liquid element of the portfolio investing directly in listed real assets.

Once fully invested the Company will provide diversified access to what is currently over 700 underlying private real assets through private funds and accounts managed by JPMorgan Asset Management.

The Company aims to provide investors with a long-term target NAV return of 7 - 9 per cent. per annum once fully invested, inclusive of a dividend yield of 2 - 3 per cent. in respect of the first year following listing, increasing to 4 - 6 per cent. per annum once the Company is fully invested.

Capital Deployment

Your Company has so far invested approximately 40% of the proceeds arising from its IPO and from subsequent share issuance. The current turmoil in financial markets has meant capital has been drawn down slower than originally intended, but we remain on course to be fully invested at or around 12 months following the IPO, as stated in the Company's prospectus. Importantly, this does not affect the Company's long term return expectations and may in fact prove beneficial as it may provide the opportunity to commit capital to the private strategies at reduced valuations. The Company will continue to inform shareholders, via a regulatory news service, as investments into the underlying strategies are undertaken.

Investment and Share Price Performance

From the Company's first day of trading (24th September 2019) to 29th February 2020, the Company recorded a total return on net assets of -1.5%. The total return for shareholders who subscribed for shares in the initial issue has been +2.2% over the same period. The Investment Manager's Report reviews the Company's performance and gives a detailed commentary on the investment strategy and portfolio construction, and their outlook for the strategies.

The Company's share price was 101.5p per share at the financial year end and in the period under review the shares traded in a range of 100.8p to 108.5p per share. Since the year end, the Company's share price has not been immune to market volatility and the sharp sell-off in listed equity markets as a result of concerns over the COVID-19 pandemic, at one point experiencing a sharp sell-off down to a low of 73.5p per share. This reflects a broad rise in risk aversion on the part of investors, combined with a reduction in secondary market liquidity, rather than any fundamental change in the investment performance of the Company. It is pleasing to note that subsequent to this sharp sell-off the Company's share price has recovered and the Company's shares trade at 109.0p per share as at the date of this Statement.

Revenue and Dividends

The Board declared an interim dividend of 0.75p per share, which was paid on 27th February 2020. The Board has also declared the first interim dividend, in respect of the Company's year ending 28th February 2021, of 0.75p per share, which was paid on 28th May 2020 to shareholders on the register on 1st May 2020. These distributions are in line with the Company's target of paying in the Company's first 12 months after the date of initial admission an initial gross dividend yield of 2 - 3 per cent. based on the initial issue price of 100.0p per share.

In response to the COVID-19 pandemic, central banks have cut interest rates across the globe. As a result, the interest income which the Company is receiving on its largely dollar denominated near-cash instruments has declined. Given the high proportion of the Company's asset base held in liquidity funds awaiting investment into the underlying private funds, this fall in interest income results in a significant short term reduction in the net revenue available to shareholders.

The Directors intend to maintain the current level of dividend payments and see no immediate threat to the level of quarterly dividends being paid; in part, they are able to maintain this by drawing on the reserves from the share premium account which, following payment of the interim dividend paid on 28th May 2020, stands at approximately 1.62p per share. Over the longer term, however, the ability to maintain and grow the dividend will depend on the rate at which the Company can invest and in the continuing success of the underlying strategies.

Placing Programme and Share Issuance

Since IPO, the Company has taken advantage of the premium to NAV at which the shares have traded over the period to issue an additional 53,666,063 shares, pursuant to the placing programme. The shares were issued at a premium to NAV and resulted in net proceeds of £55.4 million. These proceeds are invested in line with the Company's investment policies across the underlying investment strategies. Share issuance has always taken place at a premium to the prevailing cum-income NAV per share and so is accretive to the returns of existing shareholders. If conditions are appropriate, the Company will continue to issue new shares which, as well as assisting with premium management, will also enhance liquidity and continue to underpin the Company as an attractive investment.

Corporate Governance

The Board is committed to maintaining and demonstrating high standards of corporate governance, which is essential to foster the long-term, strategic thinking that will create and protect value for all stakeholders. The Board has considered the principles and provisions of the 2019 Association of Investment Companies Code of Corporate Governance (the 'AIC Code'). The AIC Code addresses all the principles and provisions set out in the UK Corporate Governance Code, as well as setting out additional principles and provisions on issues that are of specific relevance to investment companies. The Board considers that reporting in accordance with the principles and provisions of the AIC Code provides relevant and comprehensive information to shareholders.

I am pleased to report that throughout the period ended 29th February 2020, the Company complied with the recommendations of the AIC Code except, as explained in the Directors' Report, where it has not yet had the opportunity to do so.

The Board

In accordance with the Company's Articles of Incorporation, all Directors will be retiring and seeking election by shareholders at the Company's first Annual General Meeting. The Board's knowledge and experience is detailed on page 31 of the Company's Annual Report & Financial Statements for the period ended 29th February 2020 ('2020 Annual Report').

Annual General Meeting

The Company's first Annual General Meeting will be held on 31st July 2020 at 1.00 p.m. and we hope that it will be possible to arrange this at Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR. However, given the continued impact of the COVID-19 outbreak, it may be difficult to hold the Annual General Meeting in the format typically expected by shareholders (and in particular for non-Guernsey based shareholders to attend). Your Board will continue to review arrangements for the Annual General Meeting in light of any further measures imposed or eased by the States of Guernsey and will update shareholders of any changes.

With effect from 20th June 2020, the States of Guernsey will implement Phase 5 of its transitional plan to ease the stay at home and travel restrictions originally introduced on 25th March 2020 in light of COVID-19. Whilst restrictions within the Bailiwick of Guernsey have been eased, permitting gatherings to take place within the Bailiwick of Guernsey, any persons arriving into the Bailiwick of Guernsey are presently required to self-isolate for a period of 14 days upon arrival. Due to the restrictions in place from 20th June 2020, whilst Guernsey based shareholders are permitted to physically attend the Annual General Meeting, shareholders from outside of the Bailiwick of Guernsey are strongly encouraged to appoint the chairman of the Annual General Meeting as their proxy.

Shareholders from outside of the Bailiwick of Guernsey are encouraged to raise any questions in advance of the meeting with the Company Secretary at the Company's registered address, or via the 'Ask Us a Question' link which can be found in the 'Contact Us' section on the Company's website. Separate conference dial-in facilities will be provided to allow shareholders to listen to and participate in (but not vote at) proceedings at the Annual General Meeting. This is to ensure that all shareholders have the opportunity to participate in the meeting. Details of how to access the dial-in facilities will be provided to shareholders on application to the following email address: alison.c.vincent@jpmorgan.com with details of their shareholding.

The Board strongly encourages shareholders to participate in the meeting by submitting any questions in advance and to participate in the relevant private telephone conference dial-in facilities. Any specific questions on the business of the Annual General Meeting can be submitted by no later than 48 hours prior to the relevant meeting (or any adjournment thereof) by email to alison.c.vincent@jpmorgan.com.

Should circumstances change and restrictions be further eased or tightened prior to the date of the Annual General Meeting, the Company will announce, via its website and, as appropriate, through an announcement on the London Stock Exchange, any change in the arrangements which it feels would be reasonable and practical to implement.

Outlook

These are early days for JARA but the first six months of the Company's existence as a public Company have certainly been a baptism of fire. The short period since your Company's launch has seen unprecedented volatility as the world has sought to contain, mitigate and control the spread of the COVID-19 pandemic. Despite huge levels of support from governments across the world, the economic impact of the virus is likely to be severe and long lasting.

Although no asset class has been immune from the immediate effects of the pandemic or will fully protect investors from its longer term effects, the attributes of a broadly diversified portfolio real assets, with their relatively stable asset values and predictable cash flows, should prove attractive when compared with other asset classes. It is pleasing that the Company's shares have traded predominately at a premium to NAV and that the Company has successfully issued a further 53,666,063 shares since IPO.

Deployment of the Company's capital into the underlying real asset strategies has been slowed by current economic conditions. This does not change the long term returns we expect the Company to provide investors; indeed the opportunity to enter these strategies at lower prices may ultimately enhance returns.

 

John Scott

Chairman

18th June 2020

 

INVESTMENT MANAGER'S REPORT

Welcome

Firstly, please let us start this inaugural Investment Manager's Report with a message of welcome to all shareholders. We are delighted to be able to bring JPMorgan Global Core Real Assets Limited (the 'Company' or 'JARA') to the investment company market in what was a difficult period for IPOs and we thank all those investors who trusted us with their capital. As the investment outlook continues to be uncertain across a range of markets we feel JARA's position as an income focused, foundational allocation within shareholder portfolios is more important than ever and we look forward to being a fiduciary of your capital and working with the Board to achieve successful outcomes for years to come.

Portfolio Review

Given the timing of the launch, this year's Investment Manager's Report covers a condensed period of 24th September 2019 (date of IPO) through to 29th February 2020. In addition to this, given it takes time to get invested into our target underlying private strategies, the portfolio was predominantly cash throughout this reporting period. Given these facts, we do encourage shareholders not just to read this Portfolio Review section but also take note of the sections around Capital Deployment, our Real Asset Outlook and Key Portfolio Themes - each of which will hopefully be instructive on how we see the portfolio evolving from here.

Since IPO, the Company's portfolio has had a total return on net assets of -1.5%, inclusive of a 0.75p per share dividend. The main driver of this negative return was sterling's appreciation versus most major currencies following a decisive General Election result shortly after the Company's IPO. Of particular note was that, between launch and the Company's year-end, sterling strengthened by 3.2% against the US dollar and by 2.7% against the euro, creating a foreign exchange ('FX') loss. As a reminder, the Company's portfolio is unhedged and therefore, when allocating overseas (at year end 97.4% of JARA's exposure was non-sterling), FX risk is present. Historically, FX gains/losses have tended to cancel themselves out as they 'revert to mean' over time. Given this historical precedence; the structural risk that hedging illiquid assets can bring and the impact the cost of hedging can have on income, the decision not to hedge FX exposure was taken at IPO alongside discussion with key shareholders.

At the end of the period approximately 40% of initial IPO proceeds had been invested into our listed real assets strategies and our private US real estate strategy. Following further share issuance in the secondary market the Company had a cash balance of 65% at its financial year end and has a bias towards real estate within its invested portfolio. As JARA gets further invested, it will diversify into a range of different sectors across the real asset spectrum and it is expected that the look through currency exposure will diversify away from the US dollar, however we do expect the US dollar to remain the principal currency exposure at about 60%.

At the end of the period the listed real assets strategies represented 18.5% of the portfolio, marginally below the long-term strategic asset allocation of 20% for this portion of the portfolio. As a reminder, JARA's listed real asset allocation is made up of two distinct strategies: US all-tranche REITs and an allocation more broadly across a variety of listed real assets. Both of these strategies recorded negative performance over the period, which was driven by a market-wide COVID-19 sell-off which started in February.

Within the all-tranche REIT strategy, since inception, we have been positioned in a relatively risk off position with around 50% of this strategy allocated to common equity REITs and the other 50% in more senior parts of the capital structure or cash. Although this equity allocation did increase towards the end of the period, to 53.9%, this is still at the lower range of what we expect for our equity allocation. We view the flexibility to invest in different parts of the REIT capital structure as key in providing comparative stability and income during these volatile times. This general risk off approach was a beneficial one in what were challenging markets over the period. This strategy produced a -3.3% net return in US dollar terms, quite a significant outperformance compared to pure-equity US REIT benchmarks.

Within our other listed real assets allocation there was also negative performance as with broader negative equity markets. The largest contributor to this was the performance by listed transportation investments (representing 1.3% of JARA's exposure at period end). Since inception this was down 5.3% in US dollar terms.

The Company had its initial allocation into private US Real Estate drawn on 8th November 2019. Since then, as the Company has issued new shares, it has continued to subscribe as appropriate to the underlying private strategies and, as such, some top-up investments have been made. Allocations within our real estate strategies are being driven by 'millennial trends' at this current time. This has led to a general focus of increasing exposure to industrial/logistics assets, reducing retail and to us seeing a number of opportunities in the residential sector. These are trends which may very well be accelerated due to the COVID-19 pandemic and are covered in more detail in the Key Portfolio Trends and Outlook sections below.

Capital Deployment

As detailed in the prospectus the initial target was to have the proceeds from IPO invested within 12 months following launch at the end of September 2019. It was also expected that, after six months, around 80% of the net initial proceeds would be invested. At the end of the reporting period the Company had so far invested approximately 40% of the proceeds and given the current turmoil in financial markets, we were subsequently unable to meet the initial six month deployment target. However JPMAM believes that the Company remains on course to be fully invested at or around the 12 month period, as stated in the prospectus.

Whilst disappointing not to meet the interim deployment target this meant that the Company was well positioned - given its high cash levels - during the volatility throughout February and March. In the current market environment, the management team feel it is only natural for the pace of investment to slow as the underlying investment teams implement business continuity procedures and markets adjust to the new (often remote) way of working. There is also the need for any investments in the pipeline to be re-evaluated given the significant change in market conditions and this may result in some acquisitions (and sales) being dropped or delayed. Finally, we are aware that whilst the levels of market volatility we have seen can, at times, create opportunities, there remains the need to proceed cautiously given how uncertain the forward looking environment remains - this means any new purchases will need to be on very sound footing.

The Company will inform investors as and when further investments into the underlying strategies are made.

Key Portfolio Themes

Within JARA's portfolio there are several global trends which are driving portfolio positioning across a number of strategies. Below we have highlighted three of these key trends; we intend to keep investors updated on these trends and how they impact portfolio positioning, as well as others which become apparent on an ongoing basis.

Millennial Trends

The millennial generation and their preferences have created a range of 'new normals'. These are currently best reflected within our real estate allocation.

• 'Generation rent' in the United States and Asia-Pacific has changed how we think about residential real estate with big opportunities for single-family rental development and with smaller apartments in Japan.

• The 'E-commerce effect' has for some years made logistic assets the place to invest. Given the strength of e-commerce in the United States and Asia-Pacific, we are optimistic on the sector.

• Given the COVID-19 pandemic and the impact it has had on shopping habits we expect this e-commerce trend to accelerate, particularly in locations closer to urban centres that enable 'last mile' distribution and the speed of delivery so many of us expect.

• JARA: As of 29th February 2020, within the private real estate strategies there was an average industrial/logistics weighting of 16.2%. This position is expected to increase over the course of 2020.

Embracing Sustainability

• Over the past decade, focus on sustainable investing and, in particular, renewable energy has risen steadily.

• This trend can also be seen in transportation where we feel there is a long term competitive advantage for newer, more environmentally friendly assets, which are both better for the environment and more cost efficient to run than older assets.

• JARA: All of the private strategies within JARA are 'ESG-integrated', that is, each of the strategies explicitly and systematically include ESG factors where material and relevant throughout the investment process.

Positioning for Durability

• There are a number of ways core real asset strategies can be positioned for providing downside resilience during market volatility. For example, over the course of the past decade, core infrastructure has delivered steady income returns from contracted and regulated sources.

• We expect a similar type of return profile from other types of real assets and that the portfolio as a whole will have additional durability because the different real asset categories are uncorrelated to each other.

• JARA: To maximise the durability of the portfolio, we continue to focus on:

- High quality credit counterparties.

- Prudent leverage levels with leverage in the underlying strategies, averaging 33.1% on a look through basis.

- Maximising length of contracted income, with current average length of private real estate leases in excess of five years.

Real Asset Market Outlook

Early 2020 marked the end of the longest bull market in history. While it is difficult to predict, you can plan and, given the length of the cycle, the focus was on building portfolio resiliency. We advocated a strategic asset allocation for real assets with an emphasis on stable cash flows and income growth over price appreciation. Although we did not have insight into the unprecedented shutdown to come, this approach turned out to be correct and, if anything, has been strengthened. One could argue core real assets look even more appealing right now as investors look for asset classes which could act as a relative safe haven compared to broader markets and, given recent central bank action, are even more attractive for those searching for income. Finally, given the nature of the fiscal stimulus around the world and the possibility for turbocharged levels of demand once lockdown restrictions are lifted, there is the possibility of increased inflation over the medium term. Although this has not been a necessary consideration for investors for some time, should such a scenario arise, historically, real assets have protected against inflation well.

Please see below for an outlook on the real asset categories either allocated within or soon to be allocated within JARA; Real Estate, Infrastructure and Transportation.

Real Estate

Coming into the COVID-19 pandemic, real estate was relatively fully priced; however, given the low to negative interest rate environment, real estate spreads to corporate BBBs, a common measure of value in the asset class, were at healthy levels. As this pandemic plays out, as with all asset classes, it is expected that lower leverage, income focused strategies with, on average, higher quality tenants will outperform. Looking at core sectors (residential, retail, office and industrial/logistics) we expect the retail sector to be hardest hit, whilst other sectors such as logistics should prove more durable. Outside traditional core assets there are a number of sectors which will be hit hard, most notably hospitality, however the Company's core focus means it has very limited exposure to these more esoteric sectors. This pandemic is likely to expediate trends we were already witnessing in the real estate market - such as the rise of e-commerce and the shift towards more flexible working arrangements.

Of longer term importance is how the definition of core real estate looks set to evolve. 'Core' does not just refer to assets whose returns are mainly from stable cash flows, but also refers to the central role these properties play in the functioning of an economy. As economies evolve, through technology, demographics and other structural trends, so should the definition of Core (traditionally the office, industrial/logistics, residential and retail sectors) - and so core allocations need to adapt. As with past trends in real estate, this is initially being seen in the REIT market where 'extended core' sectors have become an ever increasing part of the investment universe - this includes property types such as single family rentals, self-storage, bio-tech facilities and data centres. To illustrate this growth, these less traditional sectors now account for over 40% of the US REIT market capitalisation - but less than 5% of the market of the comparable private US benchmark. We expect extended core sectors to make up an increasing share of private real estate allocations as investors come to better understand these opportunities along with their risks and roles within a diversified core portfolio.

Infrastructure

Core infrastructure is one of real asset categories we expect to be more resilient during the current downturn, albeit there will be some differences between sub-sectors. For example, regulated utilities that provide heat, water and electricity remain essential to daily life whether at home or at work and, given their regulated and essential nature, we expect these businesses to be broadly less affected than other market segments during this period. Similarly, power generation such as solar, wind and natural gas, coupled with long term offtake agreements, should be relatively resilient. However, more GDP sensitive/demand based assets such as toll roads, airports and sea ports may struggle. This sector by sector difference advocates the need for well diversified portfolios both by asset type and by geography.

Beyond the current market environment, we continue to hear the refrain that has become increasingly frequent in the infrastructure market: 'Too much money is chasing too few deals.' Yet this narrative does not capture the full picture. Although significant capital has been raised, it is from a relatively low base, and private capital remains a small percentage of the market's overall financing. While on an absolute basis infrastructure returns have fallen over time, in our view they remain attractive relative to traditional asset classes, particularly on a risk-adjusted basis. It is our view that the most promising transactions will appear in middle-market, regulated and contracted assets in OECD markets providing a robust legal framework. Mid-market transactions represent more than 90% of all infrastructure transactions by number but a minority of the deal value, and hence they are more insulated from the typically intense competition for large, core 'trophy' assets-where the 'too much money' narrative often arises.

Transportation

Following a year dominated by 'Trade War' discussions (although these had a less severe impact on seaborne trade than many expected - with only an estimated 0.5% decline in global seaborne trade over the year) 2020 looked to be a less uncertain year for transportation. However, COVID-19 creates new unknowns and reminds us of the advantages to a pan-transportation strategy which is not focused on any one sector or asset type. The transportation market is an incredibly diverse and nuanced place meaning different sectors will see divergent fortunes over this period. For example, whilst the aviation industry is under severe stress, this is contrasted by a more buoyant tanker market, which has benefited from the low cost of oil and acute demand for storage capacity, floating or otherwise. This has seen significant demand for the vessels as people look to buy and store oil at today's low prices - in such market environments product tankers are being utilised as a form of floating storage. Whilst the full impact of COVID-19 is yet to be known on the transportation market, we expect to see this type of sector divergence and, given the size and scale of the JPM transport platform, coupled with the longevity of the team and presence of permanent capital, we stand well placed to capitalise on dislocations as they arise.

Beyond the shorter term, a big change going on in the transportation industry is the move to a more sustainable marketplace. A great example of this is that, from 1st January 2020, a new International Maritime Organisation regulation requires vessels to meet more demanding fuel emission standards. To comply, vessels can either switch to low sulphur fuels or they can install exhaust gas cleaning systems (scrubbers) to reduce their emissions of sulphur oxide and nitrous oxide. We expect these trends will continue, causing us to favour newer, more fuel efficient assets. We also anticipate that a number of older, less fuel-efficient ships will be scrapped, potentially limiting supply. Finally, we project that average vessel speeds could slow to reduce fuel consumption again benefitting larger, newer vessels.

 

Investment Manager

J.P. Morgan Asset Management's Alternative Solutions Group

18th June 2020

 

PRINCIPAL AND EMERGING RISKS

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of JPMF, the Audit Committee and Market Risk Committee, chaired by Helen Green and Simon Holden respectively, have drawn up a risk matrix, which identifies the principal and emerging risks to the Company in its first reporting period and is based upon its current investment portfolio. These risks will be reviewed and discussed on a regular basis by the Board and amended as required to reflect the composition of the portfolio as and when further deployments of the Company's capital are completed. At the current time, the principal risks identified and the mitigating factors employed by the Board, fall broadly into the following categories:

Investment and Strategy

An inappropriate investment strategy or poor asset allocation may lead to underperformance against the Company's peer companies, and or insufficient income may be generated by the underlying strategies to enable the Company to meet its target dividend. The Board mitigates this risk by insisting on diversification of investments through its investment restrictions and guidelines which are monitored and reported on regularly by the Managers. JPMF provides Directors with timely and accurate management information, including performance data, revenue estimates and liquidity reports. The Board monitors the implementation and results of the investment process with representatives of the investment managers, who attend the majority of Board meetings.

Investment into underlying strategies could be delayed resulting in loss of expected income and capital growth opportunity. The Manager monitors and reports to the Board on 'queue' length and the underlying pattern of deployment in the underlying strategies. Any slowing of deployment patterns are reported to Board and the income impact is modelled.

If the share price of an investment company is lower than the NAV per share, the shares are said to be trading at a discount, if the share price is higher than the NAV per share, the shares are said to be trading at a premium. Prolonged periods where the prevailing share price trades below NAV may inhibit the Company's ability to issue new equity capital and volatility in the premium or discount may harm investors' risk adjusted returns. The Manager monitors the rating of the Company's shares on a daily basis and any prolonged concerns are raised with the Board.

Valuation of Investments

Once fully invested the Company's portfolio is mainly comprised of direct investments in unquoted, hard-to-value assets and, in particular, investments in private funds on the JPMAM platform holding unquoted assets. There is a risk of variation between the Company's estimated valuations and the realisable values of investments. Accordingly, the quarterly NAV figures issued by the Company should be regarded as indicative only and investors should be aware that the realisable NAV per share may be materially different from those figures. The Board is reliant upon the valuations of the underlying investments through the publication of their audited annual results. However, given that the underlying strategies do not have contemporaneous reporting periods with that of the Company, there will be timing issues and judgements on pricing have to be undertaken by the Manager in the production of the Company's Annual Report and ultimately by the Board. Such judgements utilise the audited financial statements and quarterly valuations from the underlying unquoted investments. These are adjusted based on material changes in benchmarks and other industry data, FX movements and net income generation, to obtain an estimated valuation at the period end for the Company's reporting requirements.

 

Counterparties

The nature of the contractual frameworks that underpin many of the real assets within the underlying strategies necessitate close partnerships with a range of counterparties. These include customers or clients, lenders, and delivery partners, including construction and maintenance subcontractors. Such counterparties to which the Company is ultimately exposed will increase as the Company's assets continue to be deployed. Counterparty risk would primarily manifest itself as either counterparty failure or underperformance of contractors. The Board is able to seek information from the Manager in relation to counterparty concentration and correlation of providers. As counterparty quality is key to maintaining predictable income streams, the Manager seeks regular contact with key counterparties throughout the supply chain and with revenue-providing counterparties, while also actively monitoring the financial strength and stability of all these entities.

Operational and Cybercrime

Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the custodian's or depositary's records could prevent accurate reporting and monitoring of the Company's financial position. The Company has appointed Bank of New York Mellon (International) Limited to act as its depositary, responsible for overseeing the operations of the custodian, JPMorgan Chase Bank, N.A., and the Company's cash flows. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Internal Control section of the Corporate Governance report on pages 36 and 37 of the 2020 Annual Report. The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. JPMF has assured the Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by independent reporting accountants and reported every six months against the AAF Standard.

Geopolitical Events and Regulatory Change

The Company's investments are exposed to various geopolitical and macro-economic risks incidental to investing. Political, economic, military and other events around the world (including trade disputes) may impact the economic conditions in which the Company operates, by, for example, causing exchange rate fluctuations, interest rate changes, heightened or lessened competition, tax advantages or disadvantages, inflation, reduced economic growth or recession, and so on. Such events are not in the control of the Company and may impact the Company's performance. Various legal and regulatory changes may adversely impact the Company and its underlying investments. This could take the form of legislation impacting the supply chain or contractual costs or obligations to which the underlying strategies are exposed. Certain investments in the underlying strategies are subject to regulatory oversight. Regular price control reviews by regulators determine levels of investment and service that the portfolio company must deliver and revenue that may be generated. Particularly severe reviews may result in poor financial performance of the affected investment. As the Company invests in transportation assets, the chance of legal and regulatory change impacting the Company's investments will increase.

The Company invests in real assets via a series of private funds. The operation of these entities including their ability to be bought, held or sold by investors across a number of jurisdictions and the taxation suffered within the funds and by investors into the funds depend on a complex mix of regulatory and tax laws and regulations across a wide range of countries. These may be subject to change that may threaten the Company's access to and returns earned from the private funds.

The United Kingdom voted to leave the European Union in a referendum on 23rd June 2016 and, on 29th March 2017, the UK Government exercised its right under Article 50 of the Treaty on the European Union to give notice of the UK's intention to withdraw from the European Union. The European Union (Withdrawal) Act was passed in January 2020, and the UK is now in the transition period. The political, economic, legal and social consequences of this, and the ultimate outcome of the negotiations between the UK and the European Union, are currently uncertain and may remain uncertain for some time to come.

The Manager and its advisers continually monitor any potential or actual changes to regulations to ensure its assets and service providers remain compliant. Most social and transportation infrastructure concessions provide a degree of protection, through their contractual structures, in relation to changes in legislation which affect either the asset or the way the services are provided. Regulators seek to balance protecting customer interests with making sure that investments have enough money to finance their functions.

Over reliance on the Manager and other J.P. Morgan Chase & Co. entities

Since the Manager, the JPM delegates, investment managers, Company Secretary, fund accounting function, broker and custodian are all represented by entities within the same group company, the Company is heavily reliant upon JPMorgan Chase & Co. to implement the strategies and deliver its objectives. The Investment Manager's team is responsible for fund, portfolio and asset management, as well as investment selection and pricing discipline. A performance deterioration of any of these functions could have a material impact on the Company's objectives. The Investment Manager has a record of investing and managing real asset capabilities for over 10 years. Certain entities within JPMAM have been direct managers of real estate investments for over 45 years. It has depth of resource and knowledge in the asset class, as well as appropriate and detailed policies, procedures and compliance systems. The Investment Manager's team benefits from a group of individuals possessing relevant qualifications, relationships and experience for their roles.

The sudden departure of the investment managers or several members of the wider investment management team could result in a deterioration in investment performance. Loss of a 'key person' could lead to gaps in the 'corporate knowledge'. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach.

Climate Change

Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the effect that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. This will result from the physical consequences of climate change, and also from government policy and consumer behaviour changes to arrest the pace of adverse climate change. This has the potential to impact the financial performance of the Company's underlying investments. The Board expects its Manager to ensure the integration of ESG factors into its investment process. The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.

Although mitigated to some extent by contracted lease commitments, the Company may be exposed to substantial risk of loss from environmental claims arising in respect of its underlying real assets that have environmental problems, and the loss may exceed the value of such underlying assets. Furthermore, changes in environmental laws and regulations or in the environmental condition of investments may create liabilities that did not exist at the time of acquisition of an underlying asset and that could not have been foreseen. It is also possible that certain underlying assets to which the Company will be exposed could be subject to risks associated with natural disasters (including fire, storms, hurricanes, cyclones, typhoons, hail storms, blizzards and floods) or man-made disasters (including terrorist activities, acts of war or incidents caused by human error). Generally, the Manager (or, in the case of an investment made by a JPMAM product, the relevant manager) performs market practice environmental due diligence of all of the investments to identify potential sources of pollution, contamination or other environmental hazard for which such investment may be responsible and to assess the status of environmental regulatory compliance.

Global Pandemics

The recent emergence and spread of COVID-19 has raised the awareness of global pandemics, in whatever form a pandemic takes. COVID-19 poses a risk to the Company's portfolio and has contributed to significant volatility in trading recently. The global reach and disruption to markets of this pandemic is unprecedented, so we have no direct comparatives from history to learn from. However, seismic events and situations in the past have also been the catalyst for violent market contractions. Time after time, markets have recovered, albeit over varying and sometimes extended periods, and so we do have an expectation that the portfolio's investments will not suffer a material long-term impact and should recover once containment measures ease. Should the virus spread more aggressively or become more virulent than the experts are predicting, it may present risks to the operations of the Company, its Manager and other major service providers.

Should efforts to control a pandemic prove ineffectual or meet with substantial levels of public opposition, there is the risk of social disorder arising at a local, national or international level. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose.

Specifically in relation to the Company's Strategic Property Fund investment, the assets have exposure to: (i) businesses that, as a result of COVID-19, are likely to experience a slowdown or temporary suspension in business activities; and/or (ii) tenants who have become unemployed or furloughed which, in each case could, among other things, impair their ability to pay rent. Moreover, global pandemics and other public health crises, such as that posed by COVID-19, may result in: (i) a slowdown or downturn in the commercial real estate market, including, among other things, reduced demand for rentals and downward pressure on rental prices; (ii) construction stoppages on new developments and redevelopments; (iii) reduced availability of credit; and (iv) increased costs related to property management or an inability to adequately perform or obtain such services. The duration of the business disruption and related financial impact caused by a widespread health crisis such as COVID-19 cannot be reasonably estimated. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding from outstanding capital from investors, leveraging line of credit and the ability to close out market conditions. Given the illiquid nature of the investments held by the investment, it aims to maintain flexibility required to meet ongoing liquidity requirements by holding an appropriate level of cash.

 

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report on page 32 of the 2020 Annual Report. The management fee payable to the Manager for the period was £113,000 of which £107,000 was outstanding at the period end.

The Company holds cash in JPMorgan Sterling Liquidity Fund, which is managed by JPMF. At the period end, this was valued at £3.4 million. Interest amounting to £10,000 was receivable during the period of which £2,000 was outstanding at the period end.

The Company holds cash in JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the period end, this was valued at £122.7 million. Interest amounting to £850,000 was receivable during the period of which £172,000 was outstanding at the period end.

Included in administrative expenses in note 7 on page 61 of the 2020 Annual Report are safe custody fees amounting to £17,000 payable to JPMorgan Chase N.A. of which £17,000 was outstanding at the year end.

Handling charges on dealing transactions amounting to £19,000 were payable to JPMorgan Chase N.A. during the period of which £12,000 was outstanding at the period end.

At the period end, a bank balance of £570,000 was held with JPMorgan Chase N.A. A net amount of interest of £34,000 was receivable by the Company during the period from JPMorgan Chase N.A. of which £nil was outstanding at the period end.

Full details of Directors' remuneration and shareholdings can be found on page 42 and in note 7 on page 61 of the 2020 Annual Report. Directors received a dividend from their shares over the reporting period commensurate with their shareholdings.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report & Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Financial Statements for each financial year. Under that Law, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards to meet the requirements of applicable law and regulations. Under company Law the Directors must not approve the Financial Statements unless they are satisfied that, taken as a whole, the Annual Report & Financial Statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and 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 applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper 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 to 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.

The accounts are published on the www.jpmrealassets.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with International Financial Reporting Standards.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Corporate Governance Statement and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed on page 31 of the 2020 Annual Report confirms that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with International Financial Reporting Standards and applicable law, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and

• the Strategic 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 and emerging risks and uncertainties that it faces.

The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the position of the Company, together with a description of the principal and emerging risks and uncertainties that the Company faces.

 

For and on behalf of the Board

John Scott

Chairman

18th June 2020

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD FROM INCORPORATION ON 22ND FEBRUARY 2019 TO 29TH FEBRUARY 2020

 

2020

 

£'000

Losses on investments held at fair value through profit or loss

(2,341)

Net foreign currency losses

(3,209)

Investment income

608

Interest receivable and similar income

894

Total loss

(4,048)

Management fee

(113)

Other administrative expenses

(497)

Loss before finance costs and taxation

(4,658)

Finance costs

(1)

Loss before taxation

(4,659)

Taxation

 (69)

Net loss

(4,728)

Loss per share

(2.79)p

 

The Company does not have any income or expense that is not included in the net loss for the period. Accordingly the 'Net loss for the period, is also the 'Total comprehensive expense' for the period, as defined in IAS1 (revised).

 

All Items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM INCORPORATION ON 22ND FEBRUARY 2019 TO 29TH FEBRUARY 2020

 

Share

 Retained

 

 

premium

 earnings

Total

 

£'000

£'000

£'000

Period ended 29th February 2020

 

 

 

At 22nd February 2019

-

-

-

Issue of ordinary shares at launch on 24th September 2019

 148,899

-

 148,899

Share issue costs

(1,713)

-

(1,713)

Issue of ordinary shares

 53,388

-

 53,388

Loss for the period

-

(4,728)

(4,728)

Dividends paid in the period (note 4)

-

 (1,431)

(1,431)

At 29th February 2020

200,574

(6,159)

 194,415

 

STATEMENT OF FINANCIAL POSITION

AS AT 29TH FEBRUARY 2020

 

2020

 

£'000

Assets

 

Non current assets

 

Investments held at fair value through profit or loss

 67,857

Current assets

 

Other receivables

550

Cash and cash equivalents

 126,713

 

127,263

Liabilities

 

Current liabilities

 

Other payables

(705)

Net current assets

126,558

Total assets less current liabilities

194,415

Net assets

194,415

Amounts attributable to shareholders

 

Share premium

200,574

Retained earnings

(6,159)

Total shareholders' funds

194,415

Net asset value per share

96.8p

 

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM INCORPORATION ON 22ND FEBRUARY 2019 TO 29TH FEBRUARY 2020

 

2020

 

£'000

Operating activities

 

Loss before taxation

(4,659)

Deduct dividends received

(577)

Deduct investment income - interest

 (31)

Deduct deposit and liquidity fund interest received

(894)

Add interest paid

1

Add losses on investments held at fair value through profit or loss

2,341

Increase in prepayments and accrued income

 (19)

Increase in other payables

 485

Exchange gains/(losses) on cash and cash equivalents

3,556

Net cash inflow from operating activities before interest and taxation

 203

Taxation

(69)

Interest paid

(1)

Dividends received

526

Investment income - interest

15

Bank interest received

 722

Purchases of investments held at fair value through profit or loss

(75,415)

Sales of investments held at fair value through profit or loss

5,145

Net cash outflow from operating activities

 (68,874)

Financing activities

 

Issue of ordinary shares at launch on 25th September 2019

148,899

Share issue costs

(1,713)

Issue of ordinary shares

53,388

Dividends paid

(1,431)

Net cash inflow from financing activities

 199,143

Increase in cash and cash equivalents

 130,269

Cash and cash equivalents at the start of the period

-

Exchange movements

(3,556)

Cash and cash equivalents at the end of the period

 126,713

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD FROM INCORPORATION ON 22ND FEBRUARY 2019 TO 29TH FEBRUARY 2020

1. General information

The Company is a closed-ended investment company incorporated in accordance with the Companies (Guernsey) Law, 2008. The address of its registered office is at 1st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR.

 

The principal activity of the Company is investing in securities as set out in the Company's Objective and Investment Policies. The Company was incorporated on 22nd February 2019. The Company was admitted to the Main market of the London Stock Exchange and had its first day of trading was on 24th September 2019.

 

Investment objective

The Company will seek to provide Shareholders with stable income and capital appreciation from exposure to a globally diversified portfolio of core real assets.

 

Investment policy

The Company will pursue its investment objective through diversified investment in private funds or accounts managed or advised by entities within J.P. Morgan Asset Management (together referred to as 'JPMAM'), the asset management business of JPMorgan Chase & Co. These JPMAM Products will comprise 'Private Funds', being private collective investment vehicles, and 'Managed Accounts', which will typically take the form of a custody account the assets in which are managed by a discretionary manager.

 

2. Summary of significant accounting policies

(a) Statement of Compliance

The Company's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), the IFRS Interpretations Committee and interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect and the Companies (Guernsey) Law, 2008.

 (b) Basis of accounting

These financial statements have been prepared on a going concern basis in accordance with IAS 1, applying the historical cost convention, except for the measurement of financial assets including derivative financial instruments designated as held at fair value through profit or loss ('FVTPL') that have been measured at fair value.

All of the Company's operations are of a continuing nature.

3. Loss per share

 

2020

 

£'000

Total loss

(4,728)

Weighted average number of shares in issue during the period

169,914,631

Total loss per share

 (2.79)p

 

4. Dividends

 

2020

 

£'000

Dividends paid

 

2019/2020 interim dividend of 0.75p per share

 1,431

Total dividends paid in the period

 1,431

Dividend declared

 

2020/2021 First interim dividend declared of 0.75p per share

1,506

 

5. Net asset value per share

 

2020

Shareholders funds (£'000)

194,415

Number of shares in issue

200,802,887

Net asset value per share

 96.8p

 

6. Status of announcement

 

2020 Financial Information

The figures and financial information for 2020 are extracted from the Annual Report & Financial Statements for the period ended 29th February 2020 and do not constitute the statutory accounts for the year. The Annual Report & Financial Statements includes the Report of the Independent Auditors which is unqualified.

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

18th June 2020

 

 

For further information:

 

Alison Vincent,

JPMorgan Funds Limited

020 7742 4000

 

ENDS

 

A copy of the annual report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

The annual report will shortly be available on the Company's website at www.jpmrealassets.co.uk where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

JPMORGAN FUNDS LIMITED

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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