ABERDEEN PRIVATE EQUITY FUND LIMITED

 

AUDITED ANNUAL FINANCIAL REPORT ANNOUNCEMENT

for the year ended 31 March 2017

 

 

STRATEGIC REPORT - COMPANY SUMMARY AND FINANCIAL HIGHLIGHTS

 

Net Asset Value total return{A}			Share price total return{A}
+17.5%			+38.5%
2016	+6.6%		2016	+2.3%
{A}    Total return represents capital return plus dividends reinvested on the dividend date.
Discount to Net Asset Value			Ongoing charges (excluding performance fee)
23.1%			1.6%
2016	34.1%		2016	1.9%
Source: Aberdeen Asset Management & Morningstar

 

 

STRATEGIC REPORT - OVERVIEW OF STRATEGY

 

Introduction

The Company seeks to attract long term private and institutional investors wanting to benefit from the growth prospects of a diversified portfolio of PE investments. The business of the Company is that of an investment company and the Directors do not envisage any change in this activity in the foreseeable future. 

 

Strategy

Further details on the Company's Strategy can be found under "Outlook" in the Chairman's Statement and in the Manager's Review.

 

Duration

The Articles of Incorporation require the Company to propose a continuation vote at every third Annual General Meeting and the last triennial continuation resolution was passed at the Annual General Meeting ("AGM") held on 13 September 2016.  However, with effect from 13 September 2016, the Directors have undertaken to propose a continuation vote annually at each AGM.  Accordingly, the next continuation resolution, proposing that the Company continue its business as a closed-ended investment company, will be proposed at the AGM to be held on 15 September 2017.

 

Investment Objective and Policy

The investment objective of the Company is to maximise total returns to shareholders, principally through long-term capital gains.  The Company seeks to achieve its objective through investment in a diversified portfolio of PE funds and direct co-investments. The Company may also hold direct holdings, as an ancillary part of its portfolio, in hedge funds, other specialty funds, quoted and unquoted companies and securities, including fixed interest securities, cash-equivalent investments and cash.

 

The Company will not invest more than 10%, in aggregate, of the value of its gross assets in other investment trusts or investment companies admitted to the Official List, provided that this restriction does not apply to investments in any such investment trusts or investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other investment trusts or investment companies admitted to the Official List. In any event, the Company will not invest more than 15% of its gross assets in other investment trusts or investment companies admitted to the Official List.

 

Investment Process and Investment Opportunities

The Manager's key objective is to select PE managers which it believes will produce, over time, superior risk-adjusted returns in their chosen investment strategy and which can demonstrate significant competitive advantages compared with other funds in their peer group. The focus is on the individual merits of investments, but the industry and economic environment in which that manager is operating is also taken into consideration.

 

The investment process is systematic and disciplined. Due diligence is at its heart and typically around three to four months are spent analysing a potential manager, a process which includes a number of on-site visits with that manager. The process culminates in the provision of a detailed report that is then presented to, and discussed by, the Manager's Investment Committee (the "Investment Committee"), where a selection decision is made on all potential funds.  The Investment Committee has to approve an investment before it can be recommended to the Company's Board for approval. The Manager will also conduct operational and legal due diligence on the potential manager and proposed investment.

 

On-going monitoring is similarly robust, and includes regular reviews of market conditions and their potential effect on the underlying funds and any direct PE investment. In response to the conclusions drawn from this process, the Investment Committee recommends to the Company's Board whether or not to retain an investment.

 

Asset Allocation

The Company seeks to hold a portfolio of investments which is broadly diversified by industry sector, investment stage and size of investment, as well as by strategy. The Company intends to invest the majority of its portfolio in the buyout, growth capital, distressed and venture capital funds sectors.  Up to 25% of the portfolio, calculated at time of investment, may be invested into co-investments.

 

Risk Diversification

The Manager actively monitors the Company's portfolio and attempts to mitigate risk through diversification. Not more than 20% of the NAV, at the time of investment, is permitted to be invested in any single investment. If the Company acquires a portfolio of investments in a single transaction, this limitation will be applied individually to each of the underlying investments acquired and not to the portfolio as a whole.

 

Gearing

On 31 March 2016 the Company entered into a secured £40 million three year committed revolving credit facility, with Lloyds Bank Plc ("Lloyds").  The credit facility is available for general corporate and working capital purposes including bridging capital contribution commitments in accordance with the investment policy.  The Company's gearing policy is to ensure that its aggregate borrowings do not exceed a maximum of 25% of NAV.  During the year to 31 March 2017 and up to the date of this report, the Company has not made any drawings under the Lloyds facility. The Company's obligations under the facility are secured against the Company's assets pursuant the terms of a Guernsey security agreement and an English security deed.

 

Key Performance Indicators (KPIs)

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determine the progress of the Company in pursuing its investment policy.  The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:

 

KPI	Description
NAV and NAV total return	The Board considers the Company's NAV total return figures to be the best indicator of performance over time and these are therefore the main indicators of performance used by the Board. A table showing the NAV total return over one, three and five years is shown in the Annual Report.
Share price and Share price total return	The Board also monitors the price at which the Company's Shares trade relative to the Company's peer group and a number of major indices on a total return basis over time. Graphs showing the total share price return against the peer group and major indices are shown in the Annual Report.
Discount/Premium to NAV	The discount/premium relative to the NAV per Share represented by the Share price is closely monitored by the Board. The objective is to minimise fluctuations in the discount/premium relative to similar investment companies and in seeking to achieve this objective the Company may, subject to market conditions and if considered to be in the best interests of shareholders, use share buy backs or the issuance of new shares.  A graph showing the share price discount relative to the NAV is also shown in the Annual Report.
Ongoing Charges Ratio	The Board monitors the Company's operating costs carefully. Ongoing charges for the year and previous year are disclosed under "Strategic Report - Results" below.

 

Risk Management

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has undertaken a robust review of the principal risks and uncertainties facing the Company including those that would threaten its business model, future performance, solvency or liquidity.  Those principal risks are disclosed in the table below together with a description of the mitigating actions taken by the Board.  The principal risks associated with an investment in the Company's Shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are available on the Company's website. The Board reviews the risks and uncertainties faced by the Company in the form of a risk matrix and heat map at its Audit Committee meetings.

 

Description	Mitigating Action
Investment strategy and objectives - the setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for shares and a widening discount.	The Board keeps under review the level of discount at which the Company's Shares trade, in absolute terms and relative to its peer group, as well as the investment objective and policy. It regularly reviews the Company's strategy and receives regular updates from the Manager and investor relations reports from the Broker on the market. The Board is updated at each Board meeting on the make-up of and any movements in the shareholder register.
Investment portfolio and investment management - poor investment selection, inadequate due diligence, lack of effective monitoring and investing outside of the investment restrictions and guidelines set by the Board could result in poor performance and inability to meet the Company's objectives.	The Board sets, and monitors, its investment restrictions and guidelines, and receives regular Board reports which include performance reporting on the implementation of the investment policy, the investment process and application of the Board guidelines. The Manager attends each quarterly Board meeting.
Gearing - increasing the level of gearing could result in the Company becoming over-geared, unable to meet its financial obligations, or unable to take advantage of potential opportunities and any of these could result in a loss of shareholder value.	The Company has a £40 million credit facility that may be used to fund future commitments. The Board sets a gearing limit and receives regular updates from the Manager on the assets and liabilities of the Company and reviews these at each Board meeting. The Board receives regular reports and modelling from the Manager on the likely pattern of future calls and the expected rate of realisations from the portfolio.
Financial - the financial risks associated with the portfolio could result in losses to the Company.	The financial risks associated with the Company include overcommitment risk, market risk, liquidity risk and credit risk, all of which are mitigated through regular consultation with the Manager. The Manager reports to the Board using a range of forecast scenarios to determine the impact of future drawdowns and the likely rate at which future realisations will generate cash. The Manager monitors the Company's liquidity on a frequent basis and provides regular updates to the Board.  Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 20 to the financial statements.
Operational - the Company is dependent on third parties for the provision of all systems and services (in particular, those of the Aberdeen Group and Ipes) and any control failures and gaps in these systems and services could result in a loss or damage to the Company. In addition, failure to comply with relevant regulation (including Guernsey Company Law, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, Accounting Standards and the FCA's Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules) may have an impact on the Company.	The Board receives annual reports from the Manager (ISAE 3402 and six monthly internal controls reports) and from Ipes (AAF 01/06) on internal controls and risk management and receives compliance and administration reports at each Board meeting. Further details of the internal controls which are in place are set out in the Directors' Report. The Board relies upon its third party service providers to ensure the Company's compliance with applicable law and regulations and from time to time employs external advisers to advise on specific concerns.
PE Investment - PE investments are long-term in nature and they may take a considerable period to be realised. 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 the Company relies to a significant extent on the accuracy of financial and other information the funds in its portfolio provided to the Manager; this information is typically unaudited and updated on a quarterly or six-monthly basis.  Furthermore, PE Investments valuations are subject to the economic performance of the countries that the companies are based in or trade with, wider global economic trends and the performance of listed peer multiples which may influence valuations significantly.  If public markets decline or economic growth falters then this will impact negatively.	Under its investment policy the Company may participate in co-investments and acquire secondary investments as well as subscribing for LP interests. The Manager reviews the valuations produced by the GPs of LP investments and reports to the Board.  The Manager seeks to mitigate performance risk through effective investment allocation and the selection of high quality investments whose managements have strong track records.

 

Promoting the Company

The Board recognises the importance of communicating the long-term attractions of your Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's Shares.  The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment companies under its management. The Company supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns. The purpose of these initiatives is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's Shares. The Company's financial contribution to the programmes is matched by the Aberdeen Group.  Aberdeen Group's Head of Brand reports at least annually to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make-up of that register.

 

Alternative Investment Fund Managers Directive ("AIFMD")

The Company has appointed AFML as its AIFM.  The management agreement with AFML complies with the AIFMD regulatory regime and under this arrangement, AFML has been appointed to provide investment management, risk management, administration and promotional services. The Company's portfolio is managed by AAML by way of a group delegation agreement in place between AFML and AAML. In addition, AFML has sub-delegated promotional services to AAML.

 

AFML has notified the UK Financial Conduct Authority in accordance with the requirements of the UK National Private Placement Regime of its intention to market the Company (as a non-EEA AIF under the Directive) in the UK.  The AIFMD requires AFML, as the AIFM of the Company, to make available to investors certain information prior to such investors' investment in the Company. The Company's Pre-investment Disclosure Document ("PIDD") is available for viewing on the Company's website.

 

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge in order to allow the Board to fulfill its obligations.  When Board positions become available as a result of retirement or resignation, the Company ensures that a diverse group of candidates is considered.  No new appointments have been made to the Board since 2009, and at 31 March 2017 there were four male Directors. The Board's Statement on diversity is set out in the Annual Report.

 

Environmental, Social and Human Rights Issues

The Company has no employees as all its executive functions are undertaken by the Manager and other service providers. There are no disclosures to be made in respect of employees.  The Company's socially responsible investment policy is set out in the Annual Report.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have direct responsibility for any other emissions producing sources.

 

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least three times per year. The Board considers the Company to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of five years is an appropriate period over which to report. The Board considers that this period is more representative of a typical PE cycle and reflects a balance between the desirability of looking out over a long term horizon and the inherent uncertainties involved.

 

In assessing the viability of the Company over the review period the Directors have focussed upon the following factors:

 

-      The principal risks detailed in the Strategic Report;

-      The ongoing relevance of the Company's investment objective in the current environment;

-      The historical level of demand for the Company's Shares;

-      The flexibility of the Company's £40 million loan facility which matures in March 2019; and,

-      Financial modelling including the expected future rate of drawdowns versus likely rate of realisations under varying market conditions.

 

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report. In making this assessment, the Board has considered that factors such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future. In particular the Board recognises that this assessment makes the assumption that the resolution to continue the Company, which is now put to shareholders annually at each AGM, is passed at the AGM on 15 September 2017 and in the four subsequent years.

 

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles and the impact of regulatory changes (including MiFID II and Packaged Retail Investment and Insurance Products).  These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in the Chairman's Statement, whilst the Manager's views on the outlook for the portfolio are included in the Manager's review.

 

Howard Myles

Chairman

26 June 2017

 

 

STRATEGIC REPORT - 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 2017.

 

Performance and Dividend

During the period under review the Net Asset Value ("NAV") per Share rose by 14.2% to 152.24p. Inclusive of the two dividends, 2.2p and 2.0p (total 4.2 pence) paid respectively in September 2016 and March 2017, shareholders received a sterling NAV total return of 17.5% for the period.

 

The movement in NAV was driven by positive investment performance and by the exposure in the portfolio to US assets as a result of the strengthening in the US dollar against sterling over the year.

 

Owing to timing differences in committing to new private equity funds and co-investments, and the varying nature of many of the underlying assets, there is no appropriate benchmark with which to compare the Company's performance.

 

At the September 2016 Annual General Meeting the Company announced that in the absence of unforeseen circumstances, the Board would expect to pay each year minimum total dividends of 4.0p per share per annum, commencing with two dividends of 2.0p per Share relating to this financial year to 31 March 2017 (2016 - 2.2p). This represents a change from the previous distribution policy whereby the Company would distribute approximately 10% of the received distributions (net of recallable distributions) each year, subject to a minimum of at least 1.0p per share per annum.

 

Accordingly, the first dividend of 2.0p for the Half Year to September 2016 was paid in March 2017. The Board is therefore recommending a final dividend of 2.0p per Share, making a total payment for the financial year of 4.0p per Share (2016 - 2.2p). Subject to approval of shareholders at the AGM on 15 September 2017, this will be payable on 20 September 2017 to shareholders on the register on 18 August 2017.

 

Share Capital Management

During the period under review no Shares were purchased in the market. The Board will continue to monitor the level of discount to NAV at which the shares trade, both in absolute terms and against the discounts of comparable companies. The Board has sought approval to buy back Shares and is willing to do so, but will continue to take into account the market capitalisation of the Company and compare potential returns available from new investments.

 

Discount

On 31 March 2017 the share price discount to NAV stood at 23.1%, a substantial tightening from the 31 March 2016 level of 34.1%. Since the period end the NAV has decreased to 148.23p per Share and the discount has narrowed to 10.6% (based on the NAV as at 30 April 2017 and Share price of 132.5p as at 23 June 2017).  

 

As I discussed in my Half Year review, discounts (to NAV) for most listed private equity vehicles have remained a feature of this Investment Company subset for most of the last decade. I have also discussed in a number of my previous reviews the likely reasons for this and, broadly speaking, these remain the same investor perceptions of private equity valuations' robustness, and also the more constrained share liquidity relative to listed Investment Companies in other sectors.

 

Nevertheless, more recently the sector has rerated. This appears to be being driven by ongoing strong NAV growth and continued realisations for private equity in general. More fundamentally there appears to be a better understanding across a wide range of listed private equity buyers that the drivers of growth and realisations are solidly in place. These drivers range from simple demand for the asset class (greater cash flows driving more deals, and therefore, realisations) to the clear evidence that operational intervention in privately owned businesses does have measurable impacts on longer term success and the record of achieving realisations at prices above book value.

 

As noted in my Half Year review I felt that the Company's then discount of 27.4% was unjustified and I believe that this remains the case. As the value in the sector has become more widely recognised, a number of other listed private equity funds have rerated to tighter levels than your Company. Recent history in this sector suggests that these anomalies, in the absence of material NAV performance differences (which do not appear to be the case currently) tend to be short-lived, and that a process of discount equalisation can occur.

 

Your Board believes that with the high level of engagement of your Manager with existing and potential shareholders, ongoing strong returns and further development of the portfolio, there remains a compelling case for investment in the Company's Shares. Specifically addressing the Share liquidity aspect, the Manager's high level of focus on prospective shareholders, combined with the efforts of the Company's broker, is playing an important role in improving our Share liquidity. Consequently we have seen a material recent improvement in shareholder register turnover and we believe that these efforts may lead to further tightening in the Company's discount.

 

Gearing

On 31 March 2016 the Company entered into a £40m revolving credit facility with Lloyds Banking Group. The facility was renewed and increased to support the higher level of investment that took place throughout 2016, and to ensure efficient capital usage. The Manager does expect to draw on this facility though the timing of that is dependent on the pace of investment, underlying capital calls / distributions and/or any secondary market disposals.

 

Continuation Vote

In 2011 the Company's Articles of Incorporation were amended to introduce a three-yearly continuation vote with the first vote being passed in 2013. The Company's second three-yearly vote took place in September 2016 and was passed with a high level of Shareholder support. At the Annual General Meeting convened on 13 September 2016 the Company announced that (in addition to the revised Dividend policy, above) it would hold an annual continuation vote (to replace the existing triennial vote) commencing with the AGM in September 2017. At the same time a new, reduced and simplified management fee was introduced.

 

Your Board believes that it is in all shareholders' interests that the Company continues. Whilst large buyout names command high pricing in the secondary market, they are not all at par valuations. The Company's increased focus on investing in smaller deal size GPs is expected to deliver better performance (relative to large buyout) in the longer term, however secondary valuations can be wider. Any forced disposal programme could be to shareholders' disadvantage through crystallisation of those wider discounts on disposal. Likewise, whilst co-investing can also help with longer term fee mitigation, co-investments tend to have lower liquidity in the secondary market and higher discounts. Any forced divestiture would, we believe, be to shareholders' disadvantage.

 

Having taken soundings from our larger shareholders your Board believes that the majority of shareholders support continuation. Consequently, and combined with the outlook for the Company and the secondary pricing referred to above, your Board recommends that shareholders vote in favour of the Company's continuation.

 

Aberdeen Asset Management

The Board notes the merger between the parent company of the Company's Manager, Aberdeen Asset Management PLC, and Standard Life PLC which, subject to regulatory approvals, is expected to complete in August this year. In the interim, the Board will continue to monitor developments closely to ensure that the management team remains focused upon the interests of the Company and its shareholders.

 

Activity Levels

Your Manager has continued to be active over the year, completing the following transactions:

 

Primary Fund Commitments:

-    MTS Health Investors VI, a US lower mid-market healthcare focused fund;

-    Northzone VIII, a Nordic venture capital fund;

-    Nazca IV, a Spanish lower-mid market fund; and,

-    Summa Equity I, a first time Nordic regional fund.

 

Co-investments:

-    Imprima, an Italian digital textile printing business;

-    Source Photonics, a global communications and data connectivity business; and,

-    Indecomm Global Services, an IT services business with operations in SE Asia, India and the US.

 

Secondary Market Transactions:

-    The purchase of Sagard 3, a 2013 vintage French lower mid-market fund; and,

-    The sale of Thomas H Lee Parallel Fund VI, a 2006 vintage Primary US buyout fund.

 

Subsequent to the financial year-end your Manager completed one further co-investment which was TWMA, a UK headquartered business focused on waste disposal for the oil and gas industry.

 

Portfolio Performance

I am pleased to report that strong investment performance has been generated from a wide range of investments from GPs  such as Thoma Bravo and Silverlake (relating to their 2008 and 2007 vintages funds, respectively), and also more recent GP additions such as The Jordan Company  and CCMP, which relate to 2013 and 2014 vintage fund commitments.  I also note that this has been achieved over a period where your Manager has continued to make new investments, which has added a more recent 'J-curve'  element to the portfolio, therefore acting as a shorter term drag on overall performance. The most material negative performance from a mature fund was from Lion Capital III, a consumer focused fund, which saw mark downs across a range of its portfolio companies. Whilst some of these adjustments relate to specific Lion portfolio company issues, we are seeing challenges across a range of consumer names, partly as this sector continues to adjust to the ongoing transition from physical to digital models. Further details of performance are given in the Manager's Review below.

 

Outlook

In my 2016 Half Yearly Report I expressed some concern over the uncertain policy direction in the US given the then imminent US election and also noted our caution on the Eurozone, due to continued growth issues in this region.

 

The outcome of the US election is now known, though uncertainty remains in a number of areas. Despite initial setbacks on dismantling 'Obamacare', the House of Representatives has now voted to dismantle the Affordable Care Act, with potential sweeping changes to the US Healthcare system. However, it remains to be seen whether the President will secure sufficient support in Congress to carry out other parts of his programme.

 

In Europe, political volatility seemed to ease after the May 2017 French Presidential vote and the calling of a snap UK general election for June 2017, where it was widely expected that Prime Minister May would prevail with an increased majority. The subsequent 'hung-parliament'^[i] result will probably lead to a change of approach to UK/EU Brexit negotiations (from both sides), increased volatility for sterling in the shorter term, and almost certainly further change in the UK political landscape. Slightly tempering this volatility, and looking further afield, the failure of Italy's main parties to agree on a new election law, could mean that Italian elections are now pushed out further to 2018.

 

Private Equity as an asset class has continued its strong post Global Financial Crisis run with further buoyant fund raising. With the substantial capital raised by PE funds in 2016 it is of little surprise to see the value of older, unspent private equity commitments ('dry powder') continue. In 2016 the value of these unspent commitments was estimated at $821bn. Much of this relates to mega sized LBO funds. Purchase multiples have remained at historically high levels, and while they appear to have decreased from their recent highs in 2015 and 2016, they remain expensive at 9.4x EBITDA.

 

Accordingly the Company's strategy is to continue to focus on those opportunities in the market that are differentiated in some respect, but also can access relatively attractive valuations. These are mainly to be found in smaller sized funds that are targeting smaller deals. Our 2016 investments in US manager MTS Health Investors and Spanish manager Nazca are typical of this strategy. The latter manager, by way of example, has a demonstrable track record in acquiring smaller, family owned businesses that may have experienced generational succession problems. It is these opportunities in more inefficient deal sourcing markets which your Manager continues to find attractive.

 

I noted in the Half Year review that the residual value in older vintage investments is reducing following continued exit activity. This remains the case, and as we indicated, your Manager is accelerating that process through opportunistic engagement with the private equity secondary market. The sale of 2006 vintage investment Thomas H Lee Parallel Fund VI is a good example of this.

 

Primary fund investment activity for this portfolio is likely to remain more muted for the remainder of 2017, with a greater focus on co-investments and investments that have a low proportion of unfunded commitments. These will typically be primary funds which have already made investments and where those deals remain carried at cost, or 'early secondaries', (like the recent Sagard 3 transaction, a 2013 vintage) that are no longer Primary funds due to time elapsed, but for specific reasons may have opened up the fund to new investors.

 

Finally, your Manager notes in its investment report that the largest funds being raised are accounting for an ever greater proportion of overall fund raising. There are important implications for the alignment of interests between General Partners (the private equity managers we invest in) and Limited Partners (investors into funds). Your Board is pleased that your Manager continues to push GPs hard on all manner of alignment issues. In a maturing market it remains vital that end investors' interests are as closely aligned to the originators of performance as possible.

 

Howard Myles

Chairman

26 June 2017

 

 

STRATEGIC REPORT - MANAGER'S REVIEW

At the end of March 2017, 84.9% of the Company's NAV was invested in 33 private equity funds and 10.3% in nine co-investments. 4.8% was held in cash^[ii].

 

Performance Commentary

The 33 private equity funds in the Company's portfolio invest across a wide range of sectors, geographies and market capitalisations, providing exposure in aggregate to 370 underlying companies^[iii].

 

In local currency terms the portfolio generated a total return of 8.8%^[iv] for the period under review. Thoma Bravo IX Fund LP, a 2008 commitment, was the single largest contributor to performance. Silver Lake Partners III LP and Resolute Fund III LP, respectively 2007 and 2013 investments also delivered strong returns. The investment portfolio's performance was helped by a considerable number (23^[v]) of company exit events, whether by IPO, trade or secondary sale^[vi] from funds. The majority of these exits (18) were at a premium to held value. Further investment performance was delivered via uplifts in carrying value for ongoing investments.

 

We show below the movement of the Company's investment portfolio from the opening value to the closing value^[vii]:

 

Largest Positive Performance by Fund^[viii]

Fund	Performance ($m)
Thoma Bravo IX Fund L.P.	+3.7
Silver Lake Partners III L.P.	+2.3
Resolute Fund III L.P.	+2.1
Pine Brook Capital Partners L.P.	+1.8
CCMP Capital Investors III L.P.	+1.8
Rest of the portfolio	+8.1
Total	+19.8

 

Thoma Bravo Fund IX, a US growth and buyout fund, saw Deltek and LANDesk Software produce the largest uplifts following their sales to Roper Technologies and Clearlake Capital respectively. This consistently strong performing fund is now drawing to the end of its life.

 

The remaining investments in Silver Lake III increased by 21% over 2016. Throughout the year the fund also provided liquidity for investors by selling shares of its positions in NYSE^[ix] listed Alibaba Group Holding Ltd and Godaddy Inc.

 

Transcendia (formerly Transilwrap Company) and DiversiTech Corporation were the main drivers for the performance of Resolute Fund III. The former manufactures plastic film for a range of end industries, and the latter provide parts for the HVAC^[x] trade.

 

Pine Brook Capital Partners' valuation uplift was driven by uplifts for Essent Group (NYSE listed), Forge Energy, Origin Bancorp and Green Bancorp (NASDAQ^[xi] listed).

 

The performance produced by CCMP Capital Investors III resulted from their investments in Jetro Cash & Carry, PQ Corporation and Jamieson Laboratories. PQ Corporation is a producer of speciality inorganic chemicals, and Jamieson Laboratories is a manufacturer and distributor of vitamins. 

 

Largest Negative Performance by Fund^[xii]

Fund	Performance ($m)
Lion Capital Fund III L.P.	-1.6
Hg Capital 5 Co-Invest 1 L.P.	-0.9
Northzone Ventures VI L.P.	-0.7
APEF Investments (Europe) S.a.r.l.	-0.2
Lion Seneca Cayman 3 L.P.	-0.2
Total	-3.6

 

Lion Capital Fund III's portfolio experienced decreases in value across a range of portfolio holdings including Bumble Bee, All Saints and John Varvatos. Lion had previously agreed a sale for Bumble Bee in 2015 which failed to complete.

 

HgCapital 5 Co-Invest1 LP, the holding partnership for our co-investment in Achilles, was marked down due to weaker growth at a time of increasing expenditure on technology and customer service. The business has some sensitivity to declining spending in the Oil and Gas industry.

 

Northzone VI, a venture capital fund, saw valuation declines in portfolio companies Widespace, Sticky and eProspects. Despite this, the fund remains a top performer, having already seen exits at significant multiples of cost. The fund's DPI^[xiii] ratio is greater than 1, meaning that all our original capital has been returned via these distributions.

 

The decline for APEF Investments (Europe) S.a.r.l., the holding vehicle for our recent investment in the Spanish lower mid-market fund Nazca IV, relates to the set-up costs for this holding structure. Nazca IV had a marginally positive year.

 

The small decrease in Lion Seneca Cayman 3, the holding partnership for our co-investment in French optical retailer Alain Afflelou, reflects a narrow miss on their budgeted EBITDA targets. Despite this, the business is performing well and developing a range of additional businesses and product lines.

 

Portfolio Activity

The Company was active over the financial year, completing a series of fund commitments, secondary transactions and co-investments.

 

New fund commitments were made to Northzone VIII (May 2016, €12m), MTS Health Investors IV (May 2016, $15m), Nazca Fund IV (October 2016, €10m) and Summa Equity Fund I (No.2) AB (November 2016, SEK145.5m).

A €10m "early secondary" investment in Sagard 3, a French mid-market fund was completed in December 2016.

 

Further information on all fund investments is provided in the "Private Equity Portfolio" section.

 

Three co-investments were also completed during the financial year. These were: Imprima, a consolidation play in European digital textile printing; Source Photonics, a global provider of communications and data connectivity components; and Indecomm Global Services^[xiv], a cross-border IT services and outsourcing company with principal businesses centres in Singapore and Bangalore.

 

We also sold the Company's commitment in Thomas H Lee Parallel Fund VI LP in March 2017 through the private equity secondary market. This transaction (at a small discount) was part of an ongoing review of older portfolio vintages where there may be opportunities to exit in full, and subsequently reinvest into investments offering higher potential returns.

 

Calls for new investments

The Company paid calls of $48.4m over the year ($26.4m the previous year)^[xv] funding over 30 new investments and a number of follow-on investments.

 

Five Largest Aggregate Fund Calls[xvi]	US$m
Sagard 3 FPCI	5.2
Wisequity IV	4.1
Resolute Fund III L.P.	3.4
Exponent Private Equity Partners III L.P.	3.1
MML Capital Partners Fund VI L.P.	3.0

 

As discussed above, the Company committed €10m to an early secondary investment opportunity in Sagard 3 FPCI. This fund had already completed six investments, with a seventh signed shortly after the Company's commitment. As such Sagard 3 is 44% drawn as at March 2017 with a strong pipeline of new acquisitions.

 

The Company committed €10m to Wisequity IV in the previous financial year. This Italian lower mid-market fund has been particularly active acquiring Corob Group, Tapi Group and Taatus. It also merged two additional acquisitions, KBC Group and Guarisco Group into Imprima. This is a digital textile printing business into which we have also co-invested.

Resolute Fund III completed three new acquisitions during the period, Borchers Group Limited, Parts Authority and Dimora Brands. Follow-on acquisitions were also added for existing businesses, Vertical Bridge Holdings and Gulfstream Services.

 

Exponent III continued with its investment programme during the year, completing three investments. Following these acquisitions (Racing Post, Leisure Pass Group and The ENRA Group) the fund is now over 50% called.

 

Following the commitment to MML Capital Partners VI in December 2015, this fund has invested in seven companies to date. Two of these were acquired during this financial year, Universal Plant Services and SVP Groupe. With the exception of Learning Curve, all portfolio companies completed add-on acquisitions during the year.

 

Distributions

The Company received cash distributions of $39m during the period under review (2016: $42.8m).

 

Five Largest Aggregate Fund Distributions[xvii]	US$m
Thoma Bravo IX Fund L.P.	9.2
Silver Lake Partners III L.P.	4.3
Gores Capital Partners III L.P.	1.8
Lion Capital Fund III L.P.	1.6
Coller International Partners V L.P.	1.6

 

The Thoma Bravo Fund IX was successful in securing exits for most remaining portfolio companies. Proceeds were received for the sales of InfoVista, The Attachmate Group, Deltek and LANDesk Software. Only one company remains in the portfolio.

 

The distributions from Silver Lake Partners III relate to numerous share sales of Alibaba Group Holding Ltd during the year. Proceeds were also received from the sale of Vantage Data Centers and the partial sale of shares in NYSE listed Godaddy Inc.

 

Proceeds received from Gores Capital III related to the fund's sale of Hay Group to Musashi Simitsu, a Japan-based manufacturer of automotive components for a total enterprise value of €495m. There were also two significant recapitalisations^[xviii] for Tweddle and US Farathane.

 

Proceeds received from Lion Capital Fund III during the period relate to the fund's trade sale of ghd to Coty at an enterprise value of £420m.

 

Coller International Partners V received proceeds from numerous underlying funds and investments. These included proceeds from CAPE investments, RBS Special Opportunities Fund, PDSOF (Series C), SVG Capital plc and the sale of Penton Business Media.

 

Market News and Private Equity Environment

More recently global markets have been characterised by lower volatility driven by a variety of factors, the most significant is likely to be the combined 'relief-trades' post the recent US and French elections, with the belief that there was some certainty that Brexit would happen. As the Chairman notes in his review, the unforeseen 'hung-parliament' result from June's UK General Election has significant implications for not only the timetable for the UK's exit from the European Union, but also the 'soft' vs. 'hard' nature of that exit. In addition to this, and the inevitable change we are likely to see in UK politics, we expect greater shorter term volatility on key sterling currency pairs and some impact on UK and European public equity indices. 

 

Specifically in the US, we have seen the VIX^[xix] volatility index trading at historically low levels. These levels incorporate the 'pro-domestic' sentiment after Donald Trump's election (and of course all ongoing talk of extra-normal Russia relations and impeachment). During this period we have seen renewed levels of US equity buying, much of that seemingly from US retail investors.

 

We counsel some caution given these horizon risks (particularly on changes to the nature and timing of Brexit), but it is clear that US consumer and business sentiment has improved since the Presidential election, allowing the Federal Reserve to tighten with a 25bp hike in in interest rates in March 2017.  President Trump has brought a unique style to the Presidency, much of it highly controversial. Looking through that, and as we highlighted in our Half Yearly Report, we are optimistic on our investments in the US, and our bias towards the US lower mid-market (in respect of our more recent US investments) should benefit from any pro-domestic corporate stance that is increasingly likely from this US Administration.

 

In emerging markets, Chinese GDP growth has edged up (to 6.8% in Q4 2016), but non-financial corporate leverage remains high and efforts continue by Chinese authorities to contain and reduce these levels. Asian markets and their private equity opportunities remain interesting to us and we are as focused on the macro issues as we are on GP due diligence, given the many risks.

 

Private equity valuations remain high, in absolute terms, though they continue to ease relative to aggregate highs recorded in 2015 (10.3x). Based on data from S&P LCD^[xx] this level had fallen to10x in 2016, and has slipped further to 9.4x (Q1 2017 data). Across our global investment programme we see a spread of valuations, but with our increased focus on smaller funds in more regional markets, we tend to see transaction multiples come in at below this level. 

 

Calendar year 2016 has proved to be an extraordinary year for this asset class both in portfolio activity levels, investor interest and fund raising, the latter being a key litmus test for near term sentiment (but not necessarily for longer term returns). With $347bn^[xxi] raised by 830 private equity funds closing in 2016 there is no shortage of capital in the sector. We note with interest the ongoing polarisation in the sector i.e. more dollars being raised by fewer funds.  Relative to the above statistics, in 2015, 945 funds raised $329bn. As this continues it is inevitable that dry powder levels will rise if the industry wants to keep valuations in some degree of check. Restraint and sensible paced deployment of LPs' commitments is to be lauded, though too great a delay will inevitably hurt headline IRRs over time.

 

With this polarisation, our greater concern comes with the levels of investor alignment and governance in larger funds. Good GPs (across all size brackets) are offering appropriate alignment, but it is by no means universal. We test alignment through monitoring levels of GP commitment, assessing performance fee structures, looking at the wording around 'key man' events and many other soft factors, all in addition of course to base management fee levels, hurdle rates and fee offsets. Picking two of these, we have seen relative (to fund size) levels of GP commitment fall, and for a number of high profile funds, the removal of hurdle rates, the latter creating some negative headlines for the industry, though we and many other LPs have worked hard behind the scenes to lobby for greater LP alignment via these other factors.

 

As we have shown through our investment programme in recent years, our focus and strategy has been on smaller funds where many of these alignment issues are not so prevalent. We continue to work with managers, often long before their formal fund raising, on best practice and see that being reflected in the LPAs^[xxii] that we are signatories to.

 

Portfolio Strategy and Outlook

In our Half Yearly Report last year we re-iterated our desire to increase the portfolio's exposure to co-investments. Including post year-end allocations we now have exposure to ten names, with half of that number sourced via GP relationships that sit outside of this portfolio. We have been keen to diversify sponsor exposure, capitalising on the investment and relationship programme we have across our broader private equity business. These co-investments carry materially lower fees and thus the longer term performance impact, should that portfolio achieve its objectives, is likely to be substantial.

 

We are maintaining our overall co-investment exposure target of around 20-25% of the portfolio, and also continuing with our review of older vintage investments. As such we seek to take advantage of strong pricing where we believe we can better deploy the proceeds elsewhere. This exercise is not necessarily limited to our pre-GFC^[xxiii] investments, and in certain situations where the original purchase or commitment 'buy-case' has changed, either for portfolio construction reasons, stock specific events, or team changes (at GP or PFC^[xxiv] level), our intention is to continue to be active private equity managers.

 

In the absence of any fund sales this financial year we had anticipated in our last Half Year Report that we might draw on our increased credit facility of £40m^[xxv]. Following the sale of our holding in Thomas H Lee Parallel Fund VI LP and possible further portfolio sales, the immediacy of this drawdown has been pushed further out though we do not rule this out during the remainder of the current financial year. Our investment pipeline remains more focused on investments that will continue to bring a lower relative level of unfunded commitments ("UFCs") into the portfolio. Accordingly the focus remains on co-investments and secondary fund purchases, with a more muted Primary fund programme. We do have several GPs that we are actively monitoring and it is likely that we will make a small number of primary fund commitments in the remainder of 2017.

 

In summary, we are focused on opportunistic secondary transactions, where we feel there is upside due to the information advantage that we get through our knowledge of many of these funds. Our co-investment pipeline is strong and is continuing to generate highly differentiated deal flow for the Company. Despite the huge amounts of capital that will continue to be deployed into this asset class over the coming years, the many pockets of opportunity that exist in US and European regional markets  continue to offer compelling investment opportunities.

 

We remain positive and are delighted to see strong returns continuing to be being delivered from both earlier and more recent vintage investments.

 

 

Alexander Barr & Colin Burrow

Aberdeen Asset Managers Limited

26 June 2017

 

 

STRATEGIC REPORT - RESULTS

 

As at 31 March 2017

 

Financial Highlights

	31 March 2017	31 March 2016	% change
Total assets{A} (US$'000)	207,751	209,135	-0.7
Total equity shareholders' funds (net assets) (US$'000)	207,751	209,135	-0.7
Share price (mid market) (pence)	117.13	87.88	+33.3
Net asset value per Share (pence)	152.24	133.33	+14.2
Discount to net asset value	23.1%	34.1%
Dividend and earnings
Return per Share{B} (pence)	3.52	4.53
Dividend per Share (pence)	4.00	2.20
Ongoing charges{C}
Excluding performance fee	1.55%	1.87%
Including performance fee	2.47%	1.87%
{A}                    Total Assets less current liabilities (before deducting prior charges).
{B}        Measures the relevant earnings for the year divided by the weighted average number of shares in issue.
{C}        Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income NAV throughout the year.

 

 

Performance (total return{A})
	1 year	3 year	5 year
	% return	% return	% return
Share price	+38.5%	+63.6%	+142.6%
Net asset value	+17.5%	+48.1%	+59.5%
Source: Aberdeen Asset Management & Morningstar
{A}        Total return represents capital return plus dividends reinvested on the dividend date.

 

 

Dividends

2017	Rate	Ex dividend date	Record date	Payment date
Interim dividend	2.00p	23 February 2017	24 February 2017	17 March 2017
Proposed final dividend	2.00p	17 August 2017	18 August 2017	20 September 2017
	_____
Total dividend	4.00p
	_____
2016
Dividend	2.20p	18 August 2016	19 August 2016	16 September 2016
	_____

 

 

Private Equity Portfolio

As at 31 March 2017

 

				Vintage	NAV
	Strategy	Geography	Fund Size	Year	Weighting
Apax 8 (A8-A (feeder)) L.P.	Buyout	Global	€5.8 billion	2012	6.2%
Apax Partners is a large global private equity partnership investing in growth companies across four key sectors: Consumer, Healthcare, Services and Technology and Telecommunications. The firm has a strong operational intervention capability and actively uses this resource to help improve operational efficiencies in their portfolio companies. This fund will now only call for follow-on investments.
CCMP Capital Investors III L.P.	Buyout	US	US$3.6 billion	2013	5.0%
CCMP is a US (and London) based private equity business focusing on predominantly US mid-market buyout transactions. They invest across four sectors: Consumer / Retail, Industrial, Healthcare and Energy. The fund is currently in its investment period.
Coller International Partners V L.P.	Secondaries	Global	US$4.8 billion	2006	1.1%
Coller Capital is a leading global investor in the private equity secondary market where they seek to make investments in both Limited Partnership interests and portfolios of private companies. Coller have also bought listed private equity funds at deep discounts to NAV. This fund was originally selected for the portfolio to provide the Company with vintage year diversification and a degree of j-curve mitigation. The fund has completed its investment period but continues to make follow on investments.
CVC Capital Partners Asia Pacific IV L.P.	Buyout	Asia	US$3.2 billion	2013	1.6%
CVC Asia is one of the more established private equity partnerships in the Asia-Pacific region. Founded in 1999, CVC Asia has now raised four funds. This, their fourth fund, will invest in 15-20 control or significant minority positions across the Asian region, equally split between South East Asia, China, Japan, Korea, and other regional markets. The fund is currently in its investment period.
Exponent Private Equity Partners III L.P.	Buyout & Growth	UK	US$1 billion	2015	3.2%
Exponent is a London based GP, focusing on UK upper mid-market deals with an enterprise value ("EV") of £75m to £300m. Most of its transactions will involve buying UK domiciled businesses, though such is the EV range, many of these businesses could have significant overseas elements of manufacturing and/or sales. The fund is currently in its investment period.
FFL Parallel Fund IV L.P.	Buyout	US	US$1.5 billion	2014	1.9%
FFL was established in 1997 to undertake buyout and growth investments in US-middle market companies incorporating top down macro analysis and industry themes within their four core sectors: Business Services, Consumer, Financial Services and Healthcare. The fund is currently in its investment period.
Goldman Sachs Capital Partners VI L.P.	Buyout	Global	US$20.3 billion	2006	2.0%
Goldman Sachs Capital Partners make private equity investments globally across all market capitalisations. This fund did not focus on any particular sector and invested in buy-outs, minority stakes, listed and unlisted companies and across a variety of industries. It also allocated a proportion of the portfolio to stressed and distressed opportunities. The fund has completed its investment period and remains in distribution mode.
Gores Capital Partners III L.P.	Buyout	Global	£2.0 billion	2009	2.0%
Gores is a Los Angeles based global private equity business which invests in both mature and growing businesses. Its approach combines experienced merger and acquisition transaction capability with a strong operational angle. It aims to improve the operating performance of its portfolio companies, many of which are mature or have encountered growth problems. It typically sells its investments to strategic buyers once the businesses have regained a sound footing. This fund has completed its investment period and remains in distribution mode.
HIG Bayside Debt & LBO Fund II L.P.	Distressed	US	US$3.0 billion	2008	5.8%
HIG Capital is a global private equity firm with a number of distinct businesses, including Bayside Capital which invests across several segments of the primary and secondary debt capital markets. Bayside focuses upon three types of transactions: 1) Debt-for-control investments in companies' debt obligations with the intention to take control; 2) Leveraged buy-outs of underperforming, stressed or distressed companies; and 3) Non-control distressed debt opportunistic investments. The fund's investment period finished in May 2014 and the fund is now in divestment mode.
Latour Capital II	Buyout & Growth	France	€300 million	2015	0.9%
Latour Capital is a Paris-based private equity firm operating in the small/lower mid-market in France and neighbouring French-speaking countries. It has a strong focus on business services and companies that are either undermanaged or have a specific competitive advantage. Investments are typically in the Enterprise Value range of €30m-€200m. This fund is currently in its investment period.
Lion Capital Fund III L.P.	Buyout	Europe & US	€1.5 billion	2010	5.1%
Lion Capital is a buyout manager focused on the consumer sector, with a historical bias to Europe although it has also invested in the US. We committed to Lion in order to provide greater exposure to an eventual European consumer recovery, and at a time of competitive European transaction valuations. The fund is now effectively fully invested and is now in divestment mode.
Longreach Capital Partners Ireland 1, L.P.	Buyout	Japan, North Asia	US$750 million	2006	1.9%
Longreach is based in Hong Kong and invests in Northern Asia with a particular focus on Japan. Its core strategy is to buy non-core businesses from Japanese conglomerates before selling them subsequently as operationally improved businesses. It also looks at investment opportunities elsewhere in the region and not necessarily with Japan connections. The fund is now past its investment period, in an approved formal extension period and is actively seeking to divest its remaining holdings.
Longreach Capital Partners 2 - USD, L.P.	Buyout	Japan, North Asia	US$220 million	2012	4.4%
Longreach is based in Hong Kong and invests in Northern Asia with a particular focus on Japan. Its core strategy is to buy non-core businesses from Japanese conglomerates before selling them subsequently as operationally improved businesses. It also looks at investment opportunities elsewhere in the region and not necessarily with Japan connections. The fund is currently at the end of its investment period.
MatlinPatterson Global Opportunities Partners III L.P.	Distressed	Global	US$5.0 billion	2007	3.4%
MatlinPatterson is a "distressed for control" manager investing on a global basis. The fund invested in companies in distressed situations with the aim of controlling the financial and operational restructuring of the company, and also took minority positions in stressed and distressed situations. The fund has completed its investment period although it is still calling capital for follow on investments.
MML Capital Partners Fund VI L.P.	Buyout	Europe & US	€382 million	2014	3.0%
MML Capital operates in an attractive niche within the lower mid-market in the UK, US and France. It has a flexible approach, partnering with management teams often on a minority basis. It uses creative structuring using junior debt instruments providing downside protection whilst ensuring potential for strong equity upside through significant equity stakes. The fund is currently in its investment period.
Montagu V L.P.	Buyout & Growth	Europe	€2.75 billion	2015	-
Montagu is a prominent European manager focusing on growth and buyout deals in the UK, France, Benelux, DACH, Nordics and Poland. Their strategy is to back mid-size market leading businesses, often in more defensive sectors. It has a proven, long-term origination model based on relationships which frequently makes them management's preferred bidder. The fund is currently in its investment period and has made its first investments.
MTS Health Investors IV L.P.	Buyout	US	$365 million	2016	0.9%
MTS Health Partners is a private equity firm based out of New York focused on small buyouts in the healthcare services arena.
Nazca Fund IV FCR	Buyout & Growth	Spain	€275 million	2016	0.8%
Nazca IV is a €275m fund focused on the Spanish lower mid-market. Nazca's vast networks and strong reputation has allowed the company to unlock investment opportunities in family-owned businesses with limited or no competition in the past.
Northzone Ventures VI L.P.	Venture capital	Nordics	€130.0 million	2010	3.1%
Northzone primarily invests in technology companies either in the Nordic region or with strong Nordic components that have global potential. The management team looks for opportunities arising from major market transformation. It particularly concentrates on consumer focused internet services, new delivery platforms and network infrastructure. The fund is now in divestment mode and will now only call capital to fund follow-on investments.
Northzone Ventures VIII L.P.	Venture capital	Nordics	€350 million	2016	1.0%
Northzone VIII will focus on early stage and expansion stage investments in technology companies in the Nordics, London, Berlin and New York.
Oaktree OCM Opportunities Fund VIIb L.P.	Distressed debt	Global	US$10.9 billion	2007	0.6%
Oaktree is a distressed debt manager and focuses on acquiring debt securities at discounted prices during stressed and distressed cycles. The manager is capable of taking control and driving the financial and operational restructuring if it does not feel that it is getting the right value from a transaction. The fund has now completed its investment period and is in active divestment mode.
Pangaea Two Parallel L.P.	Growth	Global	US$910 million	2011	1.8%
The manager of this fund is Cartesian Capital, which was founded in 2006 by Peter Yu and the former senior management team from AIG Capital Partners. The firm is a global, opportunistic growth capital investor, with a focus on emerging markets. This fund is still in its investment period.
Pine Brook Capital Partners L.P.	Growth	Global	US$1.15 billion	2007	3.0%
Pine Brook is a manager focusing on mid-to-large-cap growth equity investments in the Energy and Financial Services sectors. The fund's strategy was to invest ahead of current industry practices and trends and to then take advantage of under-served markets. It is a differentiated model in as much as it is willing to invest in start-up entities albeit with established management teams. The fund has now completed its investment period and is in active divestment mode; however, it will still make selective follow-on equity injections to underlying businesses.
Resolute Fund III L.P.	Specialist	US	US$3.2 billion	2013	4.6%
Resolute Fund III is managed by The Jordan Company, a US mid-market private equity business. Its investment focus covers a wide array of industries including Industrial Products and Services, Energy, Chemical, Healthcare and Financial Services. It aims to invest in companies with an enterprise value of between $100m and $2bn and help drive growth via operational improvements. The Company committed to this Fund in 2014 and it is within its investment period.
RHO Ventures VI L.P.	Venture capital	US	US$510 million	2008	4.3%
RHO Ventures takes minority positions in start-up entities, principally in the Technology and Life Sciences sectors. The manager takes a top-down view as to which sectors have the most favourable conditions and has taken a pragmatic approach to changing investment focus. The fund has now completed its investment period and, although it is still making follow on investments, will divest where appropriate.
Sagard 3 FCPI	Buyout	France	€808 million	2013	2.4%
Sagard is a French mid-market investor based in Paris. The experienced team focuses on selecting strong, profitable, well established French based firms across several industry sectors that can be aggressively developed through strong organic / inorganic growth, margin improvements and more efficient use of capital.
Silver Lake Partners III L.P.	Buyout & Growth	Global	US$9.4 billion	2007	4.4%
Silver Lake is a prominent large cap technology investor. The firm invests globally in established, cash-flow generative businesses which are leaders in their respective industries. Silver Lake acts as a partner to management teams, investing with experienced participants to take advantage of opportunities in technology and technology-enabled industries. The fund has now completed its investment period but can still call for capital to fund follow on investments.
StepStone International Investors III L.P.	Secondaries	Europe	€732 million	2006	1.6%
StepStone is a global private markets firm which took over the management of this fund from Greenpark Capital in 2013. Greenpark's focus had been on purchasing limited partnership interests in private equity funds on the secondary market with a focus on Europe. The holding in this fund was originally acquired by the Company to provide vintage diversification and some j-curve mitigation. The fund has now completed its investment period, but continues to make follow on investments (as capital calls are made from underlying funds).
Summa Equity Fund 1 (No.2) AB	Buyout	Sweden	SEK 4.5 billion	2016	1.0%
Summa is a newly established Nordic firm that will focus on lower mid-market businesses with leading niche market positions. The investments will tend to be focused around sectors that are fuelled by 'megatrends'.
Tenaya Capital V L.P.	Venture capital	US	US$365 million	2007	3.6%
The manager co-invests in the mid to late stage rounds of venture financing of revenue positive, privately held technology companies alongside many of the top-tier venture capital firms in the US. Its aim is to diversify across the technology spectrum, and to actively manage those companies in which it is invested. The fund has now completed its investment period.
Tenaya Capital VI L.P.	Venture capital	US	US$200 million	2012	2.0%
The manager co-invests in the mid to late stage rounds of venture financing of revenue positive, privately held technology companies alongside many of the top-tier venture capital firms in the US. Its aim is to diversify across the technology spectrum, and to actively manage those companies in which it is invested. This fund is currently in its investment period.
Thoma Bravo Fund IX L.P.	Buyout & Growth	US	US$823 million	2008	0.5%
Thoma Bravo is a long-established US equity private equity business with a focus on investing in Software, Services and other Consolidating Industries. It does this by identifying talented management teams operating in a niche industry segment upon which additional acquisitions can be added, in combination with organic growth. The fund has completed its investment period and is in divestment mode.
Wisequity IV	Buyout	Italy	€215 million	2016	1.8%
Milan-based Wise is an established lower mid-market Italian GP. It invests in Italian-headquartered global market leaders with scope for further rapid growth both organically and through acquisitions. The firm looks to take a hands-on approach to value creation working closely with management teams, taking on short term roles within management if required. The fund is at the beginning of its investment period.

 

Investment Portfolio - Schedule of Investments

As at 31 March 2017

​	Total	Investment	​	​
Investments	Commitments	called/cost {B}	Fair Value	% of
Private Equity Funds Portfolio	US$'000 {A}	US$'000	US$'000	NAV
Apax 8 (A8-A(feeder)) L.P.	€ 10,000	10,274	12,906	6.2
CCMP Capital Investors III L.P.	15,000	7,453	10,413	5.0
Coller International Partners V L.P. {B}	15,000	-	2,279	1.1
CVC Capital Partners Asia Pacific IV L.P.	10,000	2,601	3,265	1.6
Exponent Private Equity Partners III L.P.	£10,000	6,350	6,608	3.2
FFL Parallel Fund IV L.P.	10,000	3,726	3,942	1.9
Goldman Sachs Capital Partners VI L.P.	15,000	5,086	4,200	2.0
Gores Capital Partners III L.P.	10,000	5,062	4,165	2.0
HIG Bayside Debt & LBO Fund II L.P.	15,000	9,005	11,951	5.8
Latour Capital II	€ 10,000	1,769	1,782	0.9
Lion Capital Fund III L.P.	€ 10,000	8,558	10,625	5.1
Longreach Capital Partners Ireland 1, L.P.	7,425	8,213	3,938	1.9
Longreach Capital Partners 2 - USD, L.P.	7,500	4,688	9,076	4.4
MatlinPatterson Global Opportunities Partners III L.P.	10,000	7,350	7,018	3.4
MML Capital Partners Fund VI L.P.	€ 13,000	5,924	6,232	3.0
Montagu V L.P.	€ 8,000	-	17	-
MTS Health Investors IV L.P.	15,000	1,846	1,846	0.9
Nazca Fund IV FCRD	€ 10,000	1,947	1,636	0.8
Northzone Ventures VI L.P.	€ 10,000	5,660	6,475	3.1
Northzone Ventures VIII L.P.	€ 12,000	1,832	2,061	1.0
Oaktree OCM Opportunities Fund VIIb L.P. {B}	15,000	-	1,205	0.6
Pangaea Two Parallel L.P.	5,000	2,690	3,732	1.8
Pine Brook Capital Partners L.P.	10,000	5,992	6,300	3.0
Resolute Fund III L.P.	15,000	6,653	9,640	4.6
RHO Ventures VI L.P.	10,000	9,466	9,012	4.3
Sagard 3 FCPI	€ 10,000	4,373	5,047	2.4
Silver Lake Partners III L.P.	15,000	5,884	9,114	4.4
StepStone International Investors III L.P.	€ 14,600	6,477	3,359	1.6
Summa Equity Fund 1 (No.2) AB	SEK 145,500	1,777	1,998	1.0
Tenaya Capital V L.P.	12,500	7,143	7,576	3.6
Tenaya Capital VI L.P.	5,000	3,738	4,187	2.0
Thoma Bravo IX Fund L.P.	10,000	704	1,041	0.5
Wisequity IV	€ 10,000	3,781	3,762	1.8
​	​	156,022	176,408	84.9
Co-investments	​	​	​	​
CCMP Co-Invest III A L.P.	1,500	1,500	1,500	0.7
Color Wind S.p.A.	€ 2,000	2,148	2,139	1.0
CSP Ergon Investment L.P.	2,500	2,087	2,087	1.0
Diamond Hill L.P.	3,000	3,000	3,000	1.4
Finvest L.P.	£2,900	2,644	2,264	1.1
Hg Capital 5 Co-Invest 1 L.P.	£3,000	4,638	2,829	1.4
Lion Seneca Cayman 3 L.P.	€ 810	988	985	0.5
LVM LP Co-Investment L.P.	1,500	625	2,800	1.4
SLP Denali Co-Invest L.P.	2,080	2,074	3,792	1.8
​	​	19,704	21,396	10.3
Total investments	​	175,726	197,804	95.2

​	​	​	​	​
​	​	​	Fair Value	% of
​	​	​	US$'000	NAV
Aberdeen Liquidity Funds	​	​	​	​
Sterling Fund	​	​	234	0.1
US Dollar Fund	​	​	1,803	0.9
​	​	​	2,037	1.0
​	​	​	​	​
Cash at bank	​	​	12,295	5.9
Cash and cash equivalents {D}	​	​	14,332	6.9
​	​	​	​	​
Other assets less liabilities	​	​	(4,385)	(2.1)
Net current assets	​	​	9,947	4.8
Net assets	​	​	207,751	100.0

 

{A} All commitments are in US$ unless otherwise stated.​
{B} Investments called/cost represents commitments drawn down less net distributions. Where net distributions exceed drawdowns a nil amount is shown. ​​​​
{C} Held via a 100% owned subsidiary.	​	​	​	​

^{D} Represents sum of fixed term deposits, Aberdeen liquidity funds and cash.

 

Co-investments

​	Original	Acquisition	​	​
​	Commitment (m)	Date	Sponsor GP	Domicile
Achilles	$4.4	05/10/2015	HgCapital	Global
Achilles is a UK-headquartered business founded in 1990 which has developed to become a world leader in collaborative supply chain networks. The company uses SaaS-based technology to allow multinationals to manage risk in their supply chains. ​​​​
Alain Afflelou	€ 0.8	12/07/2012	Lion Capital	Europe
Alain Afflelou is the third-largest branded optical chain in Europe, selling optical lenses, optical frames, sunglasses, and contact lenses. The company is  strong in France but also has a presence in countries including Spain, Portugal and Belgium. The company is able to generate revenue from a  diverse range of sources given its franchise model. ​​​​
Imprima	€ 3.0	11/11/2016	Wisequity	Italy
Project Color Wind is a consolidation play in the European textile converting industry, significantly upgrading technology at an operational level and promoting international expansion. In October 2016, Wisequity IV completed the acquisition of KBC Fashion GmbH &Co., a €60m turnover German textile company, and in November the Wise signed a definitive agreement to buy the Italian group Guarisco Class and its subsidiaries. ​​​​
Dell	$1.2	22/10/2013	Silver Lake Partners	Global
Dell is a leading global IT infrastructure vendor with an increasingly diversified product offering of end-user computing devices and enterprise solutions. Dell was taken private by Michael Dell and Silver Lake to accelerate their solutions business though they remain a significant global PC manufacturer. ​​​​
Hampshire Trust Bank	£2.9	18/02/2016	Alchemy Partners	Europe
Headquartered in London, Hampshire Trust is a specialist lender targeting the UK SME market using an efficient deposit-funding base and a scalable technology platform and banking system. ​​​​
The Hillman Group	$1.5	21/07/2014	CCMP Capital Investors	North America
Operating primarily in the US, Hillman is a leading value-added distributor of fasteners, key duplication systems, engraved tags and related hardware items to over 26,000 retail customers. The company sells to home improvement centres, as well as mass merchants, hardware stores and pet supply stores. ​​​​
Indecomm Global Services	$2.5	31/03/2017	Capital Square Partners	Singapore
Indecomm is a cross-border IT services and outsourcing company headquartered in Singapore and Bangalore. ​​​​
Source Photonics	$3.0	12/12/2016	Redview Capital	China
Source Photonics is a global provider of communications and data connectivity components and modules in next-generation data centers, mobile and fixed-line networks. ​​​​
Via Mechanics	$1.5	22/10/2013	Longreach Capital Partners	Asia
Headquartered in Japan, with operations in China, Via Mechanics ("VIA") is a leading manufacturer of micro-drilling machines for printed circuit boards (PCBs). The business was acquired from Hitachi. VIA is one of very few global players with ultrafine and high precision drilling technology that can meet the requirements for the latest smart phones and other mobile devices. ​​​​

 

 

TOP TEN HOLDINGS

As at 31 March 2017

 

			Fair
		Book	Market	NAV
		Cost	Value	Weighting
Holding	Strategy	US$m	US$m	%
Apax 8 (A8-A(feeder)) L.P.	Buyout	10.3	12.9	6.2
HIG Bayside Debt & LBO Fund II L.P.	Distressed	9.0	12.0	5.8
Lion Capital Fund III L.P.	Buyout	8.6	10.6	5.1
CCMP Capital Investors III L.P.	Buyout	7.5	10.4	5.0
Resolute Fund III L.P.	Specialist	6.7	9.6	4.6
Silver Lake Partners III L.P.	Buyout & Growth	5.9	9.1	4.4
Longreach Capital Partners 2 - USD, L.P.	Buyout	4.7	9.1	4.4
RHO Ventures VI L.P.	Venture capital	9.5	9.0	4.3
Tenaya Capital V L.P.	Venture capital	7.1	7.6	3.6
MatlinPatterson Global Opportunities Partners III L.P.	Distressed	7.4	7.0	3.4
		_____	_____	_____
Top 10 Holdings		76.7	97.3	46.8
		_____	_____	_____

 

 

EXTRACTS FROM THE DIRECTORS' REPORT

 

The Directors present their report and the audited financial statements for the year ended 31 March 2017.

 

Results and Dividend

Details of the Company's results are shown above. During the year the Company adopted a new distribution policy and in the absence of unforeseen circumstances, the Company expects to pay minimum total dividends of 4.0p per Share per annum (2016 - one dividend of 2.2p), commencing with two dividends of 2.0p per Share relating to the financial year to 31 March 2017.  An interim dividend of 2.0p was paid on 17 March 2017 (2016: n/a).  The Directors are now recommending the payment of a final dividend of 2.0p per Share in respect of the year ended 31 March 2017 which, subject to shareholder approval at the AGM on 15 September 2017, will be payable on 20 September 2017 to shareholders on the register on 18 August 2017.  In the absence of unforeseen circumstances, the Company expects to pay at least the same level of dividends for the financial year to 31 March 2018.

 

Status

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. Trading in the Company's Shares commenced on 9 July 2007.

 

The Company is a member of the Association of Investment Companies ("AIC").

 

Individual Savings Accounts

The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account ('ISA') and it is the Directors' intention that the Company should continue to be a qualifying investment.

 

The Company currently conducts its affairs so that its securities can be recommended by financial advisers to ordinary retail investors in accordance with the Financial Conduct Authority's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future.  The Company's securities are excluded from the Financial Conduct Authority's restrictions which apply to non-mainstream pooled investments (NMPIs) because the Company would qualify as an investment trust if it were incorporated in the UK.

 

Share Capital

As at 31 March 2017 there were 109,131,199 Shares in issue. During the year no Shares were issued and no Shares were purchased in the market for cancellation or treasury.

 

Voting Rights

Each Share holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Shares carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Shares in the Company other than certain restrictions which may be applied from time to time by law.

 

Management Agreement

Following a review, a revision of the management fee arrangements was agreed during the year by the Company and the Manager. From 1 October 2016, the Manager has been paid a monthly fee of 1/12 of 0.9% per annum of the NAV of the Company after deducting liabilities but excluding long-term structured debt (the "Fee"). In the period up to and including 30 September 2016 the Manager was entitled to a monthly fee of 1/12 of 1.5% of the NAV of the Company before deduction of any performance fee but after deducting liabilities (excluding from such liabilities the amount of any long-term structured bank debt approved by the Board) and deducting cash at bank, short-term deposits and the value of holdings in money market funds; plus 1/12 of 0.75% of the value of all cash at bank, short-term deposits and holdings in money market funds.

 

The Fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears.  Arrangements relating to the conditions under which a performance fee may be payable by the Company were unchanged following the review.

 

The performance fee incorporates a three year 8% per annum compound return hurdle rate.  In order to earn a performance fee all of the following criteria must be met in a performance fee year:

 

-       The NAV must have risen by more than 8% in the performance fee year;

-       The NAV must exceed the high watermark (at which a fee was last paid); and,

-       The NAV must have risen by more than 8% per annum compound over the previous three performance fee years.

 

The NAV is adjusted to add back the payment of dividends during the year.  The performance fee itself is calculated at 10% of the NAV gain above the hurdle rate in the latest performance fee year.  The total fees payable to the Manager in any performance period are capped at 3% of NAV. The NAV high watermark in relation to any future performance fee is 152.24p per Share.

The Directors review the terms of the Agreement on a regular basis and have confirmed that, owing to the investment skills, experience and commitment of the Manager, in their opinion the continuing appointment of AAML, on the terms agreed, is in the interests of shareholders as a whole.

 

The Agreement will continue in force until the Company is wound-up unless and until terminated earlier by either party giving to the other not less than 12 months' written notice. In certain circumstances the Agreement may be terminated forthwith by notice in writing by a party to the other party, including where key persons depart from the Manager or the Manager is no longer authorised to carry on investment business in the United Kingdom.

 

The Agreement contains indemnities from the Company in favour of the Manager and its associates which are restricted to exclude matters arising by reason of the negligence, wilful default, fraud or breach of the Agreement of or by the Manager or any of its associates. Furthermore, neither the Manager nor any of its associates will be liable to the Company for any loss suffered by the Company in connection with the Agreement, unless the Company has suffered such loss due to the negligence, wilful default, fraud or breach of the Agreement of or by the Manager or any of its associates.

 

Risk Management

Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 20 to the financial statements.

 

Substantial Interests

The Board has been advised that the following shareholders owned 3% or more of the issued Share capital of the Company at 31 March 2017:

 

Shareholder	Number of Shares held	% held
ReAssure Limited	28,470,818	26.1
Hampshire County Council Pension Fund	21,500,000	19.7
Merseyside Pension Fund	18,695,076	17.1
Old Mutual Global Investors	4,705,978	4.3
Seneca Investment Managers	3,650,000	3.3

 

Subsequent to the year-end the Company has been advised that (i) Hampshire County Council Pension Fund no longer holds Shares in the Company; (ii) Old Mutual Global Investors no longer holds Shares in the Company; and, (iii) Asset Value Investors is interested in 27,489,407 Shares (25.2%).

 

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company applies the principles identified in the UK Corporate Governance Code ("UK Code") which is available on the Financial Reporting Council's website: frc.org.uk.

 

The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance for Guernsey Domiciled Investment Companies which was published in February 2015 ("AIC Guernsey Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Guernsey Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.  The AIC Guernsey Code also explains that Guernsey-domiciled investment companies which report against the AIC Guernsey Code are not required to report separately against the Guernsey Financial Services Commission ("GFSC") Finance Sector Code of Corporate Governance ("Guernsey Code").

 

The Board considers that reporting against the principles and recommendations of the AIC Guernsey Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.

 

The Company has complied with the recommendations of the AIC Guernsey Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

 

-     the role of the chief executive;

-     the appointment of a senior independent director;

-     executive directors' remuneration; and,

-     and the need for an internal audit function.

 

For the reasons set out in the AIC Code, and as explained in the UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally-managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive Directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Corporate Governance Statement can be found on the Company's website, aberdeenprivateequity.co.uk.

 

Directors

The current Directors are Messrs H Myles, D Copperwaite, P Hebson and D Staples. Mr Copperwaite will retire by rotation at the Annual General Meeting and, being eligible, will offer himself for re-election. 

 

The Directors submit themselves for re-election every three years.  All Directors are considered to be free from any business or other relationship that could materially interfere with the exercise of their independent judgement. Mr Staples was, until 2003, a partner of PwC LLP in the UK ("PwC"). The Board notes that PwC is a separate partnership to PwC CI LLP which acts as auditor to the Company and Mr Staples has no financial or other interest in PwC CI LLP. In view of this the Directors are completely satisfied that Mr Staples is independent notwithstanding the fact that he is a former partner of PwC.  Mr Staples is also a non executive director of the General Partner of Apax 8 (A8-A (feeder)) LP ("Apax 8") in which the Company has an investment.  In accordance with the Company's policy on the management of possible conflicts of interest, Mr Staples did not take any part in the Board's consideration of the decision to invest in Apax 8 and Mr Staples does not participate in any specific Board discussions relating to the on-going investment in Apax 8.

 

Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper stewardship of the Company.  The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all Directors contribute effectively.

 

The Board is committed to improving the opportunities for people from a diverse range of backgrounds to understand and prepare for membership of corporate boards. During the period under review an apprentice was appointed from Board Apprentice Limited, which is a not-for-profit organisation dedicated to creating a wider pool of board-ready candidates. For a period of one year, the Board appointed Katie Hutchins as a Board apprentice, and in that capacity, she attended all Board and Committee meetings as an observer for educational purposes. Ms Hutchins received no expenses or remuneration from the Company and her twelve month term of appointment came to an end on 1 May 2016.

 

The Board meets quarterly, with ad hoc meetings in between to deal with issues as they arise. Mr Hebson is a UK resident. In order to be eligible to attend a Board meeting a UK resident Director must be situated outside the UK at the time of the meeting.  The Directors attended the following meetings during the year ended 31 March 2017 (with their eligibility to attend the relevant meetings in brackets):

 

	Scheduled Board	Other Board	Audit	AGM	Other Com
H Myles	4 (4)	3 (3)	4 (4)	1 (1)	4 (4)
D Staples	4 (4)	3 (3)	4 (4)	1 (1)	4 (4)
D Copperwaite	4 (4)	3 (3)	3 (4)	1 (1)	4 (4)
P Hebson	4 (4)	3 (1)*	4 (3)*	1 (1)	4 (4)

 

* Mr Hebson attended a number of meetings from the UK but did not count in the quorum of those meetings

 

The Board has a schedule of matters reserved to it for decision and the requirement for Board approval on these matters is communicated directly to the senior staff of the Manager. Such matters include strategy, gearing, treasury and dividend policy. Full and timely information is provided to the Board to enable the Directors to function effectively and to discharge their responsibilities. The Board also reviews the financial statements, performance and revenue budgets.

 

Board Committees

The Directors have appointed a number of Committees as set out below. Copies of their terms of reference, which clearly define the responsibilities and duties of each Committee, are available on the website. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.

 

Audit Committee

The Audit Committee Report is on pages 43 and 44 of the Annual Report.

 

Management Engagement Committee

The Management Engagement Committee comprises all of the Directors and is chaired by Mr Copperwaite. The Committee reviews the performance of the Manager and the investment management and secretarial agreements and compliance with their terms. The Committee also reviews the engagement terms of all other material third party service providers. The terms and conditions of the Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. The Committee believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.

 

Nomination Committee

All appointments to the Board of Directors are considered by the Nomination Committee which comprises the entire Board and is chaired by Mr Myles. When searching for new independent non executive Directors, candidates are identified against the requirements of the Company's business and the need to have a balanced Board.  Every Director is required to receive appropriate training as deemed necessary. A Director appointed during the year is required, under the provisions of the Company's Articles of Incorporation, to retire and seek election by shareholders at the next Annual General Meeting. The Articles of Incorporation require that one third of the Directors retire by rotation at each Annual General Meeting.  The Board's policy is that Directors who have served more than nine years will submit themselves for annual re-election on a voluntary basis. The Board's overriding priority in appointing new Directors to the Board is to identify the candidate with the best range of skills and experience to complement existing Directors. The Board recognises the benefits of diversity in the composition of the Board. When Board positions become available as a result of retirement or resignation, the Company will ensure that a diverse group of candidates is considered. 

 

The Company has put in place the necessary procedures to conduct, on an annual basis, an appraisal of the Chairman of the Board, Directors' individual self-evaluation and an evaluation of the Board as a whole.  Following formal performance evaluations, it was concluded that the performance of each Director, including those seeking re-election continues to be effective and demonstrates commitment to the role. Accordingly, the Board has no hesitation in recommending the re-election of Mr Copperwaite at the forthcoming AGM.

 

Remuneration Committee

A Remuneration Committee has been established comprising the entire Board and which is chaired by Mr Hebson. The remuneration of the Directors has been set in order to attract and retain individuals of a calibre appropriate to the future development of the Company. The Company's policy on Directors' remuneration, together with details of the remuneration of each Director, is detailed in the Directors' Remuneration Report on pages 45 to 47 of the Annual Report.

 

Management of Conflicts of Interests

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors are required to disclose other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

 

The Company has a policy of conducting its business in an honest and ethical manner. The Company takes a zero tolerance approach to bribery and corruption and has procedures in place that are proportionate to the Company's circumstances to prevent them. The Aberdeen Group also adopts a group-wide zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption. Copies of the Aberdeen Group's anti-bribery and corruption policies are available on its website aberdeen-asset.com.

 

Internal Control

The Board is ultimately responsible for the Company's system of internal control and risk management and for reviewing its effectiveness. The Board confirms that as at 31 March 2017 there was an ongoing process for identifying, evaluating and managing the Company's significant business and operational risks, that it was in place for the year ended 31 March 2017 and up to the date of approval of the Annual Report, that it is regularly reviewed by the Board and accords with the internal control guidance for directors in the UK Code.

 

The design, implementation and maintenance of controls and procedures to safeguard the assets of the Company and to manage its affairs properly extends to operational and compliance controls and risk management. The Directors have delegated the investment management of the Company's assets to the Manager within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Manager's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.

 

Risks are identified and documented through a risk management framework by each function within the Manager's activities. Risk is considered in the context of the FRC and the UK Code guidance, and includes financial, regulatory, market, operational and reputational risk. This helps the Manager's internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board. The principal risks and uncertainties facing the Company are identified on in the Strategic Report.

 

The key components designed to provide effective internal control are outlined as follows:

 

-    the Board and Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board;

-    the Manager prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;

-    the administrator is responsible for independently preparing NAV calculations and controlling functions such as cash payments;

-    internal controls reports (ISAE3402 and AAF 01/06) are reviewed from all key service providers;

-    as a matter of course, the Manager's compliance department continually reviews the Manager's operations; and

-    written agreements are in place which specifically define the roles and responsibilities of the Manager and other third party service providers.

 

The Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place at the Manager, has decided to place reliance on the Manager's systems and internal audit procedures. At its meeting in June 2017, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 March 2017 by considering documentation from the Manager, including the internal audit and compliance functions and taking account of events since 31 March 2017. The results of the assessment were then reported to the Board at the next Board meeting.

 

The system of internal control and risk management is designed to meet the Company's particular needs and the risks to which it is exposed. The system of internal control and risk is designed to manage rather than eliminate the risk of failure to achieve business objectives and by its nature can only provide reasonable and not absolute assurance against misstatement and loss.

 

Relations with Shareholders

The Directors place a great deal of importance on communication with shareholders. The Manager and the Company's stockbroker aim to meet larger shareholders at least annually. The Annual Report and financial statements are widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website (aberdeenprivateequity.co.uk).

 

The Notice of AGM included within the Annual Report and financial statements is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board or Manager, either formally at the Company's Annual General Meeting, informally following the meeting or in writing at any time during the year via the Company Secretary. The Company Secretary is available to answer general shareholder queries at any time throughout the year.

The Board recognises and supports the Manager's investor relations programme which includes active engagement with substantial shareholders. The Directors make themselves available to meet substantial shareholders on an ad hoc basis.  The Board receives regular detailed reports and updates on investor relations from the Manager.

 

Socially Responsible Investment Policy

The Board is aware of its duty to act in the interests of the Company and its shareholders. The Board acknowledges that there are risks associated with investments into privately held companies, via Limited Partnerships ("LPs"), or direct investment, which fail to conduct business in a responsible manner. The Directors, through the Company's Manager, therefore encourage PE General Partners ("GPs") to adhere to best practice across the spectrum of Environmental, Social and Corporate Governance ("ESG") issues.

 

The Manager considers a range of material social, environmental and governance factors in the evaluation of investments into PE funds and direct investments.  Specifically, the investment team considers these factors in line with the Principles for Responsible Investment ("PRI"). Aberdeen Asset Management signed the United Nations Principles for Responsible Investment in 2007. The guide is now known simply as PRI, which has been specifically designed for PE. These are used within the diligence process for new fund investments and in the on-going monitoring of these commitments. The Manager requests specific information on the process that a GP uses in its own due diligence to assess the Company's potential exposure to environmental, social, human capital and governance risks, as well as financial factors. This helps to ensure a holistic approach is taken to risk assessment and that these issues are fully considered within that GP's investment approval process. Where a particular GP lacks transparency on ESG issues, this will be taken into account when making an investment recommendation.

 

Prior to recommending a commitment, the investment team also undertake due diligence on how the General Partner approaches the reporting of ESG issues to investors and other stakeholders, to ensure that LPs will receive adequate disclosure of any material risks or issues arising during a fund's life.

 

The Manager also requests information on how GPs address ESG issues in their portfolio companies during their period of ownership. Where material issues arise, the Manager will aim to become fully involved in LP decision making where appropriate, and will track the progress of these issues through to resolution.

 

Annual General Meeting

The Company's Annual General Meeting is convened for 10.30 a.m. on 15 September 2017 at the offices of Ipes (Guernsey) Limited, 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL.

 

Continuation of the Company

The Directors have undertaken to offer an annual opportunity to shareholders to vote on the continuation of the Company.  Accordingly Resolution 7 will be proposed at the Annual General Meeting convened for 15 September 2017 as an ordinary resolution requiring a simple majority of votes cast in order for the Company to continue its business as a closed ended investment company.

 

Accountability and Audit

The respective responsibilities of the Directors and the auditor in connection with the financial statements are set out in the Annual Report.

 

Independent Auditor

Our independent auditor, PricewaterhouseCoopers CI LLP ("PwC CI LLP"), has indicated its willingness to remain in office. Resolution 6 will be proposed as an ordinary resolution at the AGM to re-appoint PwC CI LLP as independent auditor for the ensuing year, and to authorise the Directors to determine their remuneration.

 

Disapplication of Pre-emption Rights

Resolution 8 will be proposed as a special resolution at the AGM to provide the Directors with an annual authority to disapply pre-emption rights in respect of up to 10% of the Share capital when issuing Shares and/or selling Shares from treasury. This authority will expire at the conclusion of the AGM in 2018.  Any future issues, or sales of Shares from treasury, will only be undertaken at a premium to the prevailing NAV per Share.

 

Purchase of the Company's Securities

As part of the discount control mechanisms, the Board may consider implementing a Share buy-back (subject to the limitations to be set out in Resolution 9 in the Notice of the Annual General Meeting of the Company and all other applicable laws and regulations) at each quarterly Board meeting should the Shares have been trading at a discount to NAV of 10% or greater for more than 90 days. The Company has the authority to manage demand flows for its Shares by purchasing up to 14.99% of the issued Share capital. Up to 10% may be held within treasury and resold. The remainder will be cancelled. Annual shareholder approval will be sought to renew this authority.

 

Purchases of Shares will only be made through the market for cash at prices below the prevailing NAV per Share (as last calculated) when the Directors believe that it would be in the interests of shareholders generally to do so. No Shares were repurchased in the year ended 31 March 2017.

 

At the Annual General Meeting to be held on 15 September 2017, Resolution 9, a special resolution, will be proposed to renew the Directors' authority to make market purchases of the Company's Shares in accordance with the provisions of the Listing Rules of the Financial Services Authority. Accordingly, the Company will seek authority to purchase up to 14.99% of the current issued Share capital. The authority being sought shall expire at the conclusion of the Annual General Meeting in 2018 unless such authority is renewed prior to such time. Any Shares purchased in this way will either be cancelled and the number of Shares will be reduced accordingly, or the Shares will be held in treasury.

 

Recommendation

Your Board considers each of the AGM resolutions to be in the best interests of the Company and its members as a whole. Accordingly, your Board recommends that shareholders should vote in favour of each of the resolutions to be proposed at the Annual General Meeting, as they intend to do in respect of their own beneficial shareholdings amounting to 108,870 Shares.

 

Going Concern

The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the level of the Company's assets and significant areas of financial risk including the level of liquidity, the estimated draw down of commitments and timing of realisations from the portfolio. Note 20 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk. The Directors believe that it is appropriate to prepare the financial statements on the going concern basis, as explained in the Basis of Preparation paragraph in note 2 and of the financial statements.

 

Accordingly, the Directors are recommending shareholders to vote in favour of the continuation vote and, based upon initial discussions with the larger shareholders, they believe that the resolution to continue will be passed. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Nevertheless, the Directors are making full disclosure, as required by accounting standards, to indicate the existence of a material uncertainty (the continuation vote referred to above), which may cast doubt on the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company were unable to continue as a going concern.

 

By order of the Board

 

David Staples

Director

 

Registered Office:

1 Royal Plaza, Royal Avenue

St Peter Port, Guernsey

GY1 2HL

 

26 June 2017

 

 

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;

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

-    assess whether the Annual Report and financial statements, taken as a whole, is 'fair, balanced and understandable'.

 

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 auditor is unaware.

 

In accordance with Disclosure Guidance and Transparency Rule 4.1.12:

 

The Directors confirm to the best of their knowledge that:

 

-    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

-    that in the opinion of the Directors, the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy; and

-    the Strategic Report, including the Chairman's Statement and the Manager's Review, 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 the Company faces.

 

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 auditor is 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 auditor is 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 auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts 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

26 June 2017

 

 

STATEMENT OF COMPREHENSIVE INCOME

 

For the year ended 31 March 2017

 

		Year ended	Year ended
		31 March 2017	31 March 2016
	Notes	US$'000	US$'000
Net changes in fair value of financial assets at fair value through profit or loss	13	10,641	11,180
Income	4	117	78
Currency gains		45	40
Investment management fee	5	(2,361)	(2,833)
Performance fee	5	(1,887)	-
Other operating expenses	6	(1,492)	(1,211)
Tax incurred on distribution income	7	(263)	(142)
		________	________
Profit attributable to equity shareholders		4,800	7,112
		________	________
Earnings per share	9
US Dollar (cents)		4.40	6.52
Sterling (pence)		3.52	4.53
		________	________
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 International Accounting Standard 1 (revised).
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

 

 

BALANCE SHEET

As at 31 March 2017

 

		As at	As at
		31 March 2017	31 March 2016
	Notes	US$'000	US$'000
Non-current assets
Financial assets held at fair value through profit or loss	10	197,804	173,104
Current assets
Cash and cash equivalents		14,332	36,574
Other receivables	14	594	666
		________	________
		14,926	37,240
		________	________
Creditors: amounts falling due within one year
Other payables	15	(4,979)	(1,050)
		________	________
Net current assets		9,947	36,190
		________	________
Creditors: amounts falling due after more than one year
Trade and other payables	15	-	(159)
		________	________
Net assets		207,751	209,135
		________	________
Share capital and reserves
Share capital	16	229,199	229,199
Revenue reserves	17	(21,448)	(20,064)
		________	________
Equity shareholders' funds		207,751	209,135
		________	________
Net asset value per share	18
US Dollar (cents)		190.37	191.64
		________	________
Sterling (pence)		152.24	133.33
		________	________

 

 

STATEMENT OF CHANGES IN EQUITY

 

For the year ended 31 March 2017
	Share	Revenue
	capital	reserves	Total
	US$'000	US$'000	US$'000
Balance at 31 March 2016	229,199	(20,064)	209,135
Dividend paid	-	(6,184)	(6,184)
Profit attributable to equity shareholders	-	4,800	4,800
	________	________	________
Balance at 31 March 2017	229,199	(21,448)	207,751
	________	________	________
For the year ended 31 March 2016
	Share	Revenue
	capital	reserves	Total
	US$'000	US$'000	US$'000
Balance at 31 March 2015	229,199	(23,414)	205,785
Dividend paid	-	(3,762)	(3,762)
Profit attributable to equity shareholders	-	7,112	7,112
	________	________	________
Balance at 31 March 2016	229,199	(20,064)	209,135
	________	________	________

 

 

STATEMENT OF CASH FLOWS

 

	Year ended	Year ended
	31 March 2017	31 March 2016
	US$'000	US$'000
Cash flows from operating activities
Profit for the year	4,800	7,112
Net interest income from cash and cash equivalents	(117)	(78)
Net changes in fair value of financial assets at fair value through profit or loss	(10,641)	(11,180)
Distribution income from investments	3,866	2,497
Realised gains on investee distributions	16,778	28,125
Realised currency gains on investment distributions	(764)	(2,925)
Capital calls in relation to investee expenses	(4,647)	(3,260)
Purchases of investments including calls	(48,386)	(26,402)
Sales of investments and returns of capital	19,094	15,166
Increase/(decrease) in trade and other payables	3,770	(844)
Decrease/(increase) in trade and other receivables	72	(602)
	________	________
Net cash (outflow)/inflow from operating activities	(16,175)	7,609
Cash flows from investing activities
Net interest income from cash and cash equivalents	117	78
	________	________
Net cash inflow from investing activities	117	78
Cash flows from financing activities
Equity dividends paid	(6,184)	(3,762)
	________	________
Net cash outflow from financing activities	(6,184)	(3,762)
	________	________
Net change in cash and cash equivalents for the year	(22,242)	3,925
	________	________
Cash and cash equivalents at beginning of the year	36,574	32,649
	________	________
Cash and cash equivalents at the end of the year	14,332	36,574
	________	________

 

 

NOTES TO THE FINANCIAL STATEMENTS:

 

For the year ended 31 March 2017

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 shares were listed on 9 July 2007 whereupon the Company became a closed-ended investment company, domiciled in Guernsey. The Company is authorised by the Guernsey Financial Services Commission. The principal activity of its subsidiary, APEF Investments (Europe) S.a.r.l. which was incorporated with limited liability and registered in Luxembourg on 30 September 2016, is similar in all relevant respects to that of its Guernsey parent.

 

2.	Accounting policies
	The accounting policies which are considered material in relation to the Company's financial statements, all of which have been applied consistently, are as follows;
	(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.
		Note 20 includes the Company's objectives, policies and processes for managing its capital, its financial risk management objectives, details of financial instruments and exposure to financial risks and liquidity risk. The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the on-going cash flows and the level of cash balances and available liquidity facilities as of the reporting date as well as taking forecasts of future cash flows into consideration and consideration of the continuation vote.  After making enquiries of the Investment Manager and the Administrator, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least one year from the date the financial statements were signed. Accordingly, the Directors continue to adopt a going concern basis in preparing these financial statements.  Thus they have continued to adopt the going concern basis of accounting in preparing the financial statements.
		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 of investments where management are required to exercise judgement in the adoption of critical estimates which can impact the carrying values of investments.
		At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective;
		-	IAS 7 Amendment - Disclosure Initiative
		-	IAS 12 Amendment - Recognition of Deferred Tax Assets for Unrealised Losses
		-	IFRS 12 Amendment (AI 2014 -16) - Clarification of the scope of the Standard
		-	IFRS 9 - Financial Instruments
		-	IFRIC 22 - Foreign Currency Transactions and Advance Consideration
		In addition, under the Annual Improvements to IFRSs 2012 - 2014 Cycle, a number of Standards are included for annual periods beginning on or after 1 January 2017.
		The Company intends to adopt the Standards and Interpretations in the reporting period when they become effective and the Board does not anticipate that the adoption of these Standards and Interpretations in future periods will materially impact the Company's financial results in the period of initial application although there will be revised presentations to the financial statements and additional disclosures. In forming this opinion the Board specifically notes the fundamental rewrite of accounting rules for financial instruments under IFRS 9 and introduces a new classification model for financial assets that is more principles-based than the current requirements under IAS 39 Financial Instruments: Recognition and Measurement. Financial assets are classified according to their contractual cash flow characteristics and the business models under which they are held. Instruments will be classified either at amortised cost, the newly established measurement category fair value through other comprehensive income or fair value through profit of loss. The Company's portfolio does not include any holdings which have contractual cash flows and the Board have determined it will be appropriate to continue to classify these investments at fair value through profit or loss. In further considering the Company's business model, the Board is mindful that the Manager manages and evaluates the performance of the Company on a fair value basis and is compensated based on the fair value of assets managed.
	(b)	Financial assets
		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.
			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 asset or liability. 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 with financial assets and liabilities being derecognised when the right to receive cash flows or the obligation to pay settle cash flows has expired or the Company has transferred substantially all risks and rewards of ownership.
		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 amortised 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.
			IFRS 13 'Fair Value Measurement' aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS.
		iv)	Investees
			The Company's investments in investees (that is, limited partnerships, co-investments 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 Directors in consultation with 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 including carried interest amounts 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)	Investment in Subsidiary
			Entities which meet the definition of an investment entity are required to fair value subsidiaries through profit or loss rather than consolidate them. An investment entity meets the definition of an investment entity if it satisfies the following three criteria:
			(i)       an entity obtains funds from one or more investors for the purpose of providing those investors with investment services; the Company provides investment services and has several investors who pool funds to gain access to these services and investment opportunities which they might not be able to as individuals.
			(ii)       an entity commits to its investors that its business purpose is to investment solely for capital appreciation, investment income, or both; the Company's investment objective is to provide Ordinary Shareholders with long-term capital gains through investment in a diversified portfolio of private equity funds and direct co-investments.
			(iii)      an entity measures and evaluates the performance of substantially all of its investments on a fair value basis; the Company has elected to measure and evaluate the performance of all of its investments on a fair value basis. The fair value basis is used to present the Company's performance in its communication with the market and the primary measurement attribute to evaluate performance of all of its investments and to make investment decisions.
			The Company meets the definition of an investment entity as defined by IFRS 10 and is required to account for the investment in APEF Investments (EUROPE) S.a.r.l. (the "Subsidiary"), which is itself an investment entity, at fair value through profit or loss.
			These financial statements are the only financial statements presented by the Company.
			The Company controls 100% of the voting rights and ownership interests in the Subsidiary, acquired at the time of the Subsidiary's incorporation in Luxembourg on 30 September 2016.
			The Company and the Subsidiary operate as an integrated structure whereby the Company invests into the Subsidiary. Total subscriptions made by the Company into the Subsidiary during the year ended 31 March 2017 were $1,947,000 (2016 - nil). As at 31 March 2017 and 31 March 2016 there were no capital commitment obligations and no amounts due to the Subsidiary for unsettled purchases.
			Per IFRS 10, there is a requirement for the Directors to assess whether the Subsidiary is itself an Investment Entity. The Directors have performed this assessment and have concluded that the Subsidiary is itself an Investment Entity for the reasons below:
			(a)      The Subsidiary has obtained funds for the purpose of investing in equity or other similar interests and providing the Company (and its investors) with returns from capital appreciation and investment income.
			(b)      The performance of investments made through the Subsidiary are measured and evaluated on a fair value basis.
			Furthermore, the Subsidiary is itself not deemed to be an operating entity providing services to the Company, and therefore is able to apply the exception to consolidation.
			Movements in the fair value of the Subsidiary's portfolio and corresponding movements in the fair value of the Subsidiary may expose the Company to a loss.
		vi)	Cash and cash equivalents
			Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments with original maturities of three months or less.
		vii)	Listed securities
			Listed investments are designated upon initial recognition as at fair value through profit or loss. Subsequent to initial recognition, investments are valued at fair value which for listed investments is deemed to be last trade market prices. On adoption of the standard, the Company elected to use last traded price for valuing listed assets, where this falls between the bid-ask spread.
	(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. Dividend income and income from investees is recognised gross of tax deducted at source, which is recognised as an operating expense.
	(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 investments which the Company makes are primarily denominated 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 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
		Expenses which are directly incurred only on the issue of shares are written off against the share premium account.
	(h)	Dividends payable
		Dividends which are proposed as final dividends for shareholder approval are recognised upon shareholder approval being granted. Interim dividends which are declared by the Board and do not require shareholder approval are recognised upon their declaration.
	(i)	Distributions in-specie
		Where distributions in-specie occur, these are designated upon initial recognition at fair value through profit or loss. Thereafter the assets are valued at fair value and in line with the relevant accounting policy.
	(j)	Other receivables and payables
		Other receivables do not carry any interest and are short-term in nature, and are, accordingly, stated at their amortised cost. Other payables are non-interest bearing and are stated at their amortised cost.

 

3.	Segmental information
	The Company engaged in a single segment of business during the year: investment in the Private Equity Funds (including direct and co-investments) portfolio. A reconciliation of movements in value during the year can be found in notes 10 and 13 where additional analysis has been provided for the benefit of shareholders.
	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 diversified portfolio of investments and in accordance with the Company's investment policy no single investment may account for more than 20% of the Company's net assets at the date of investment.

 

		2017	2016
4.	Income	US$'000	US$'000
	Net interest income from cash and cash equivalents	117	78
		________	________

 

		2017	2016
5.	Management fees	US$'000	US$'000
	Investment management fee	2,361	2,833
		________	________
	During the year AFML provided management services to the Company.
	Under the terms of the management agreement, for the six months ended 30 September 2016, the basis of the monthly fee paid to the Manager was equal to one-twelfth of 1.5% of the NAV of the Company before deduction of any performance fee but after deducting liabilities (excluding from such liabilities the amount of any long-term structured bank debt approved by the Board) and deducting cash at bank, short-term deposits and the value of holdings in money market funds plus one-twelfth of 0.75% of the value of all cash at bank, short-term deposits and holdings in money market funds. Following a review of management fee arrangements, with effect from 1 October 2016, the Manager is paid a monthly fee of one-twelfth of 0.9% per annum of the NAV of the Company after deducting liabilities but excluding long-term structured debt. The fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears. At 31 March 2017 US$157,000 was outstanding (31 March 2016 - US$239,000).
	At the time of the launch of the Company the previous manager entered into agreements to share part of its management fee with certain shareholders that had subscribed to the original offer. These arrangements are continuing to the extent that original shareholders have remained continuously interested in the Company's shares.
		2017	2016
		US$'000	US$'000
	Performance fee	1,887	-
		________	________
	In addition, the Manager is entitled to a performance fee subject to certain conditions.
	In order to earn a performance fee all of the following criteria must be met in a performance fee period:
	-    the NAV must have risen by more than 8% in the performance fee period;
	-    the NAV must exceed the high watermark (at which a performance fee was last paid); and
	-    the NAV must have risen by more than 8% per annum compounded over the previous three performance periods.
	The performance fee itself is calculated at 10% of the NAV gain above the hurdle rate in the performance period. Furthermore, the total fees payable to the Manager in any performance period is capped at 3% of NAV. As at 31 March 2017 US$1,887,000 was payable (31 March 2016 - US$nil). Notwithstanding the fact that net asset value has decreased over the period in the Company's functional and presentation currency of US Dollars, the calculation basis of the performance fee is based in Sterling terms and given the fall in Sterling against the US Dollar in the period this gives rise to a performance fee being accrued at the period end.

 

		2017	2016
6.	Other operating expenses	US$'000	US$'000
	Administration fees{A}	159	176
	Auditor's fees:
	- audit	72	74
	- for review of the interim report	15	22
	Bank charges	4	4
	Brokerage fees	49	52
	Custody fees	14	15
	Depositary fees	31	19
	Directors' fees	182	195
	Directors' and officers' insurance	12	18
	Legal and professional fees{B}	233	195
	Loan facility fees	494	206
	Printing and communication{C}	127	136
	Travel expenses	10	10
	Listing fee	13	14
	Registrar's fees	37	40
	Regulatory fees	12	12
	Subscription fees	22	19
	Other expenses	6	4
		________	________
		1,492	1,211
		________	________
	{A}    The Administrator is paid by the Company a fee of £111,750 (US$140,000) per annum plus disbursements. The contract notice period is 90 days. At 31 March 2017 £30,000 (US$36,000) was outstanding (31 March 2016 - £29,000 (US$42,000)).
	{B}    Included within the total are costs of US$187,000 (2016 - US$nil) attributable to the renewal of the loan facility and costs of US$36,000 (2016 - US$37,000) related to taxation services provided by Ernst & Young LLP.
	{C}    Included in the total are costs attributable to the Company's agreement with AAML ('AAML') for the provision of promotional activities 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 £77,000 (US$107,000) (2016 - £74,000 (US$112,000)) and the sum due to AAM at the year end was £18,000 (US$23,000) (2016 - £45,000 (US$66,000)).

 

7.

Taxation

The Company is subject to federal and state tax on effectively connected income ("ECI") received from certain of its underlying portfolio holdings in the US. Such taxes are deducted by the investee from income before being paid to the Company. Upon filing the Company's annual tax return with US authorities the Company will be able to assess whether any ECI tax paid on its behalf may be recoverable. US$nil was identified as recoverable at 31 March 2017 (31 March 2016 - US$nil). In certain circumstances, the Company is also in a position to receive recoverable withholding taxes on distribution income from underlying holdings. During the year ended 31 March 2017, the Company incurred state taxes of US$61,000 and withholding tax expenses of US$256,000 and received withholding tax refunds of US$46,000, and federal tax refunds of US$8,000, therefore amounting to a net tax expense for the year of US$263,000. The Company is domiciled and registered for taxation purposes in Guernsey where it pays an annual exempt status fee (which is currently £1,200) under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as amended). Consequently, the Company does not pay income or corporation taxes there and, other than in the US as noted above, does not currently suffer such taxes anywhere else.

 

		2017	2016
8.	Dividends	US$'000	US$'000
	Amounts recognised as distributions to equity holders in the period:
	Dividend for 2016 - 2.20p (2015 - 2.20p)	3,457	3,762
	Interim dividend for 2017 - 2.00p (2016 - nil)	2,727	-
		________	________
		6,184	3,762
		________	________
	The proposed final dividend for 2017 has not been included as a liability in these financial statements as it is subject to shareholders' approval at the Annual General Meeting which is scheduled for 15 September 2017 (2016 - same).
	The table below sets out the proposed final dividend, and dividends paid, in respect of the financial year.
		2017	2016
		US$'000	US$'000
	Interim dividend for 2017 - 2.00p (2016 - nil)	2,727	-
	Proposed final dividend for 2017 - 2.00p (2016 - dividend -2.20p)	2,729	3,457
		________	________
		5,456	3,457
		________	________

 

9.

Earnings per share

The basic earnings per share is calculated by dividing the profit attributable to equity shareholders of £3,839,000 (US$4,800,000); (2016 - £4,948,000) (US$7,112,000)) by 109,131,199 (2016 - 109,131,199) shares, the weighted average number of shares in issue during the year. There were no potentially dilutive shares in issue at 31 March 2017 (31 March 2016 - nil). Whilst the Company has chosen to report basic earnings per share in a currency other than its functional and presentation currency as supplementary information it has complied with the requirements of IFRS including the translation method.

 

		2017	2016
		Private Equity	Private Equity
		Funds	Funds
10.	Financial assets held at fair value through profit or loss	US$'000	US$'000
	Cost at beginning of year	142,967	131,609
	Additions	48,386	26,402
	Disposals and return of capital	(19,094)	(15,166)
	Realised gains/(losses) on investments	3,445	122
		________	________
	Cost at end of year	175,704	142,967
	Unrealised gains on investments	22,100	30,137
		________	________
	Fair value at end of year	197,804	173,104
		________	________
	As at 31 March 2017 (2016 - same) there was one operating segment, being Private Equity Funds and direct and co-investments.

 

11.	Unconsolidated structured entities
	The Company invests in investment funds and has assessed whether these investees should be classified as unconsolidated structured entities in accordance with IFRS 12 - Disclosure of Interests in Other Entities. These investees are closed-end private equity limited partnerships or investment companies which invest in underlying companies for the purposes of capital appreciation. These entities are generally financed through committed capital from limited partners or shareholders, with cash being drawn down for financing investment activity. The Company has considered the voting rights and other similar rights afforded to investors in these investees, including the rights to remove the General Partner or liquidate the investee. The Company has concluded that these rights or the contractual agreement with the General Partner is the dominant factor in controlling the investees.
	As at 31 March 2017, the Company's maximum exposure to loss attributable to these entities comprises the current carrying value of the assets, along with the uncalled committed capital relating to those investments, as summarised below:
		31 March 2017	31 March 2016
		US$'000	US$'000
	Financial assets held at fair value through profit or loss	197,804	173,104
	Uncalled commitments	141,888	122,816
		________	________
	Maximum loss exposure	339,692	295,920
		________	________

 

12.	Fair value hierarchy
	IFRS 7 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in making measurements.
	Fair value estimation
	The Company has adopted IFRS 13 'Fair Value Measurement'. The fair value of financial assets and liabilities traded in active markets is based on quoted market prices at the close of trading on the period end. If a significant movement in fair value occurs immediately subsequent to the close of trading on the period end date, valuation techniques will be applied to determine the fair value. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
	Investments in private equity funds, including co-investments, may not have a readily available market and are therefore valued based on the fair value of each private equity fund as reported by the respective General Partner as per the capital account summary statement, normally updated and received on a calendar quarterly basis, which includes estimates made by those General Partners. The Board and Manager believe that this value, in most cases, represents fair value as of the relevant statement date, although, if other factors lead the Board or Manager to conclude that the fair value attributed by the General Partner does not match their estimate of actual fair value, the Board and Manager will adjust the value of the investment from the General Partner's estimate. The Board and Manager estimate fair value using publicly available information and the most recent financial information provided by the General Partners, as adjusted for cash flows since the date of the most recent financial information. As the key input into the model is official valuation statements, we do not consider it appropriate to put forward a sensitivity analysis on the basis insufficient benefit is likely to be derived by the end user. 94% by value of the portfolio has been valued using 31 March 2017 quarter-end valuations, 2% has been valued using an estimate of value at 31 March 2017 and 4% has been valued using 31 December 2016 quarter-end valuations, adjusted for cash movements.
	The Company has classified fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
	Level 1: quoted prices (unadjusted) 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 (ie as prices) or indirectly (ie derived from prices); and
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement of the instrument 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 financial asset or liability.
	The determination of what constitutes "observable" requires significant judgement by the Directors in consultation with the Manager. The Directors consider observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
	The following tables summarise 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 2017	US$'000	US$'000	US$'000	US$'000
	Financial assets at fair value through profit and loss	-	-	197,804	197,804
		________	________	________	________
		Level 1	Level 2	Level 3	Total
	31 March 2016	US$'000	US$'000	US$'000	US$'000
	Financial assets at fair value through profit and loss	-	-	173,104	173,104
		________	________	________	________
	A reconciliation of fair value measurements in Level 3 is set out in the following table (Private Equity Funds includes co-investments):
					Private Equity
					Funds
	Year ended 31 March 2017				US$'000
	Opening balance				173,104
	Purchases including calls				48,386
	Sales and return of capital				(19,094)
	Total gains or losses on investments included in Statement of Comprehensive Income:
	- on assets sold				3,445
	- on assets held at the year end				(8,037)
					________
					197,804
					________
					Private Equity
					Funds
	Year ended 31 March 2016				US$'000
	Opening balance				175,125
	Purchases including calls				26,402
	Sales and return of capital				(15,166)
	Total gains or losses on investments included in Statement of Comprehensive Income:
	- on assets sold				122
	- on assets held at the year end				(13,379)
					________
					173,104
					________

 

13.	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 financial assets at fair value through profit or loss shown in the Statement of Comprehensive Income is analysed as follows:
		2017	2016
		US$'000	US$'000
	Unrealised losses on investments	(8,037)	(13,379)
	Capital calls in relation to investee expenses{A}	(4,647)	(3,260)
	Realised gains on disposal of investments	3,445	122
	Realised gains on investee distributions	16,778	28,125
	Realised currency losses on investee distributions	(764)	(2,925)
	Distribution income from investments	3,866	2,497
		________	________
		10,641	11,180
		________	________
	{A}        Capital call expenses relate to management fees and other expenses paid to investees.

 

		2017	2016
14.	Other receivables: amounts due within one year	US$'000	US$'000
	Prepayments	519	654
	Due from Subsidiary	75	-
	Accrued interest	-	12
		________	________
		594	666
		________	________
	The fair value of other payables approximates carrying value due to the short-term nature of these instruments.

 

		2017	2016
15.	Creditors: amounts due within one year	US$'000	US$'000
	Due within one year
	Management fees	157	239
	Performance fee	1,887	-
	Outstanding settlements	2,500	-
	Loan facility arrangement fee	144	474
	Other expenses	291	337
		________	________
		4,979	1,050
		________	________
	Due after more than one year
	Loan facility arrangement fee	-	159
		________	________
	The fair value of other payables approximates carrying value due to the short-term maturity of these instruments.

 

		2017	2016
16.	Share capital	US$'000	US$'000
	Management shares
	Authorised: 10,000 shares of £1 each
	2 Management shares of £1 each	-	-
		________	________
		-	-
		________	________
		2017	2016
		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 of 109,131,199 (2016 - 109,131,199) Sterling shares	229,199	229,199
	Nil (2016 - nil) Sterling shares repurchased/issued during the year	-	-
		________	________
	Closing balance of 109,131,199 Sterling shares	229,199	229,199
		________	________
	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. Shareholders' rights attaching to the Sterling shares are detailed within the "Glossary of Terms and Definitions" on page 88 of the Annual Report.
	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.
	The Company's Sterling shares give shareholders the entitlement to all of the capital growth in the Company's assets and to all the income from the Company that is resolved to be distributed. The Sterling shares are in registered form and traded on the London Stock Exchange's Main Market.  Subject to the Articles of Incorporation, on a show of hands every registered holder of Shares (a shareholder) who is present in person (or, being a corporation, by representative) shall have one vote. On a poll every shareholder present in person (or, being a corporation, by representative) or by proxy shall be entitled to one vote in respect of each Share held by him. In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the Shares. On a winding up of the Company, following payment to the holders of Management Shares of any sums up to the nominal amount paid up thereon, the assets of the Shares available for distribution among the holders of Shares shall be distributed amongst the holders pro rata to the number of such Participating Shares held by each shareholder and no holder of Shares shall have any claim against the Company or any remaining assets of the Company in respect of any shortfall.

 

		2017	2016
17.	Revenue reserves	US$'000	US$'000
	Opening revenue reserves	(20,064)	(23,414)
	Profit attributable to equity shareholders	4,800	7,112
	Dividend paid	(6,184)	(3,762)
		________	________
	Closing revenue reserves	(21,448)	(20,064)
		________	________
	Revenue reserves attributable to shareholders	(21,448)	(20,064)
		________	________

 

18.

Net asset value

The net asset value of each share is determined by dividing the net assets of the Company attributable to the shares of £166,141,000 (US$207,751,000); (2016 - £145,505,000 (US$209,135,000)) by 109,131,199 (2016 - 109,131,199), being the number of shares in issue at the year end. Whilst the Company has chosen to report net asset value per share in a currency other than its functional and presentation currency as supplementary information it has complied with the requirements of IFRS including the translation method.

 

19.	Commitments
	The table below summarises commitments to the underlying investments of the Company at 31 March 2017.
			Total		Outstanding
		Currency	Commitments	Currency	Commitments
		'000	US$'000	'000	US$'000
	Apax 8 (A8 -A (Feeder)) L.P.	€ 10,000	10,696	€ 812	869
	CCMP Capital Investors III L.P.		15,000		6,599
	Coller International Partners V L.P.		15,000		3,270
	CVC Capital Partners Asia Pacific IV L.P.		10,000		6,653
	Exponent Private Equity Partners III L.P.	£10,000	12,505	£4,995	6,246
	FFL Parallel Fund IV L.P.		10,000		5,881
	Goldman Sachs Capital Partners VI L.P.		15,000		2,238
	Gores Capital Partners III L.P.		10,000		1,644
	HIG Bayside Debt & LBO Fund II L.P.		15,000		2,435
	Latour Capital II L.P.	€ 10,000	10,696	€ 8,040	8,599
	Lion Capital Fund III L.P.	€ 10,000	10,696	€ 1,681	1,798
	Longreach Capital Partners Ireland 1, L.P		7,425		280
	Longreach Capital Partners 2 - USD, L.P.		7,500		1,010
	MatlinPatterson Global Opportunities Partners III L.P.		10,000		434
	MML Capital Partners Fund VI L.P.	€ 13,000	13,903	€ 7,435	7,952
	Montagu V L.P.	€ 8,000	8,556	€ 7,720	8,257
	MTS Health Investors IV L.P.		15,000		12,792
	Nazca Fund IV FCR	€ 10,000	10,696	€ 9,124	9,758
	Northzone Ventures VI L.P.	€ 10,000	10,696	€ 366	392
	Northzone VIII L.P.	€ 12,000	12,834	€ 10,025	10,722
	Oaktree OCM Opportunities Fund VIIb L.P.		15,000		1,500
	Pangaea Two Parallel L.P.		5,000		1,799
	Pine Brook Capital Partners L.P.		10,000		985
	Resolute Fund III L.P.		15,000		7,599
	RHO Ventures VI L.P.		10,000		-
	Sagard 3 FCPI	€ 10,000	10,696	€ 5,584	5,973
	Silver Lake Partners III L.P.		15,000		1,621
	StepStone International Investors III L.P.	€ 14,600	15,615	€ 449	480
	Summa Equity Fund I (No.2) AB	SEK 145,500	16,295	SEK 125,922	14,104
	Tenaya Capital V L.P.		12,500		1,120
	Tenaya Capital VI L.P.		5,000		872
	Thoma Bravo Fund IX L.P.		10,000		-
	Wisequity IV	€ 10,000	10,696	€ 6,211	6,643
	Co-investments		20,963		1,363
			________		________
	As at 31 March 2017		402,968		141,888
			________		________

 

20.	Financial risk management
	The Company maintains positions in a variety of investees 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 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. Achievement of the investment objectives involves taking risks. The Manager exercises judgement based on analysis, research and risk management techniques when making investment recommendations. Adherence to target asset allocations and the composition of the portfolio is monitored by the Board.
	Risk management framework
	The directors of Aberdeen Fund Managers Limited collectively assume responsibility for obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
	AFML is a fully integrated member of the Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. AFML has delegated the day to day administration of the investment policy to Aberdeen Asset Managers Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). AFML has delegated responsibility for monitoring and oversight of the Investment Manager and other members of the Aberdeen Group which carry out services and support to APWML to Aberdeen Fund Managers Limited.
	The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").
	The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
	The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.
	Risk management
	The significant types of risk that the Company is exposed to are detailed below:
	a)	Capital management risk
		- the Company may not be able to continue as a going concern, and
		- the balance between equity capital and debt may become inappropriate resulting in an adverse impact on returns to shareholders.
		The capital of the Company is represented by the net assets attributable to the holders of the Company's shares.
		It is the Board's policy to monitor and review the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which any return of capital may be made to equity shareholders via dividends or share repurchases. The Company may borrow up to 25% of the net assets of the Company. Capital transactions undertaken during the year are disclosed in the Chairman's Statement.
	b)	Market risk
		The potential for adverse changes in the fair value of the Company's investment portfolio is referred to as market risk. Commonly used categories of market 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 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 and co-investments, 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 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; the Company's market 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 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.
		The table below summarises the Company's exposure in US Dollars to currency risks at the year end:
		As at 31 March 2017	US'000	£'000	€'000			SEK'000			Total
		Assets/(liabilities)
		Financial assets at fair value through profit or loss	127,079	11,701	57,026			1,998			197,804
		Cash and cash equivalents	13,335	331	666			-			14,332
		Other assets and liabilities	(4,385)	-	-			-			(4,385)
			________	________	________			________			________
		Total at 31 March 2017	136,029	12,032	57,692			1,998			207,751
			________	________	________			________			________
		As at 31 March 2016	US'000	£'000	€'000			SEK'000			Total
		Assets/(liabilities)
		Financial assets at fair value through profit or loss	121,829	8,257	43,018			-			173,104
		Cash and cash equivalents	29,995	3,644	2,935			-			36,574
		Other assets and liabilities	(543)	-	-			-			(543)
			________	________	________			________			________
		Total at 31 March 2016	151,281	11,901	45,953			-			209,135
			________	________	________			________			________
		Currency risk sensitivity
		Based on the Company's exposure to monetary assets and liabilities denominated in Euros per the table above and the exchange rate at 31 March 2017 per note 23, a 10% strengthening in the US Dollar would result in a decrease in the net assets of the Company of US$5,769,000. Based on the Company's exposure to monetary assets and liabilities denominated in Euros per the table above and the exchange rate at 31 March 2017 per note 23, a 10% weakening in the US Dollar would result in a decrease in the net assets of the Company of US$5,769,000.
		Based on the Company's exposure to monetary assets and liabilities denominated in Sterling per the table above and the exchange rate at 31 March 2017 per note 23, a 10% strengthening in the US Dollar would result in a decrease in the net assets of the Company of US$1,203,000. Based on the Company's exposure to monetary assets and liabilities denominated in Euros per the table above and the exchange rate at 31 March 2017 per note 23, a 10% weakening in the US Dollar would result in a decrease in the net assets of the Company of US$1,203,000.
		Based on the Company's exposure to monetary assets and liabilities denominated in Swedish Krona per the table above and the exchange rate at 31 March 2017 per note 23, a 10% strengthening in the US Dollar would result in a decrease in the net assets of the Company of US$200,000. Based on the Company's exposure to monetary assets and liabilities denominated in Euros per the table above and the exchange rate at 31 March 2017 per note 23, a 10% weakening in the US Dollar would result in a decrease in the net assets of the Company of US$200,000.
		iii) Interest rate risk
		The Company is exposed to interest rate risk. The Company invests primarily in private equity funds and private equity like funds that are non interest bearing investments, mainly subject to market risk. Interest receivable on bank deposits or payable on loan positions will be affected by fluctuations in interest rates. Changes to prevailing interest rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held. In general, if interest rates rise, the value of fixed income securities will decline. A decline in interest rates will, in general, have the opposite effect.
		Although the majority of the Company's financial assets and liabilities are non interest bearing, cash and cash equivalents represent 7% of the Company's NAV (31 March 2016 - 18%). As a result, the Company is subject to some risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates.
		As at 31 March 2017 the Company's interest bearing assets and liabilities, all of which receive or pay interest at a variable rate, were as follows:
						2017			2016
						US$'000			US$'000
		Cash and cash equivalents				14,332			36,574
						________			________
		Based on the cash and cash equivalents held at 31 March 2017, a movement of 0.25% in market interest rates would impact the Company's annual income by approximately US$36,000 per annum (2016 - US$92,000 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 changes 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 NAV 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 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 2017 and 31 March 2016, the following financial assets were exposed to counterparty credit risk: cash and cash equivalents. 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 2017 and 31 March 2016 are noted below:
				2017				2016
		Credit ratings for short-term notes		Rating	% of NAV			Rating			% of NAV
		Standard Chartered		P-1	0.3			P-1			2.5
		Barclays Bank		P-1	5.6			P-1			1.7
		The Company has also placed funds within Aberdeen Liquidity Funds which are rated by S&P at 31 March 2017 and 31 March 2016 as noted below:
				2017				2016
		Credit ratings for short-term funds		Rating	% of NAV			Rating			% of NAV
		Sterling Fund		A-1	0.1			A-1			1.7
		US Dollar Fund		A-1	0.9			A-1			11.5
	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 trade and other payables. The Company will generally retain sufficient cash and cash equivalent balances to satisfy trade and other payables as they fall due.
		The Company's outstanding commitments are detailed in note 19. 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 as well as access to a revolving credit facility detailed below.
		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 2017, the Company had a revolving credit facility in place of £40 million (2016 - £40 million) with LLoyds Banking Group. The terms of the loan facility contain two main covenants; (i) LTV test - the Company shall ensure that at all times the aggregate amount of all financial indebtedness shall not exceed 20% of the Adjusted Net Asset Value and (ii) Commitment test - if and for so long as the ratio of unfunded commitments to liquidity is more than 2.5:1, the Borrower shall not enter into any further Investment Commitments in any unlisted Investment in respect of which there are uncalled commitments. The Company met both these covenants throughout the period for which the loan facility was utilised.
		The table below sets out the liquidity risk of the Company as at 31 March 2017 and 31 March 2016. All liabilities represent amounts falling due within twelve months. Amounts due within twelve months equal their carrying balances.
							Less than one year			Less than one year
							2017			2016
		Financial liabilities					US$'000			US$'000
		Other payables					4,979			1,050
							________			________
		Based on on-going communications with General Partners and the Manager's best estimates as at 31 March 2017, the outstanding commitments could be drawn down with the following maturity profile:
							2017			2016
		Maturity					US$ million			US$ million
		Less than 3 months					16			11
		3-6 months					8			8
		6-12 months					14			14
		1-2 years					28			19
		Greater than 2 years					76			70
							________			________
							142			122
							________			________
		There is no guarantee of this call rate. Any new investments or secondary sales made will alter these figures and assumptions.
		As at 31 March 2017, an analysis of the financial instruments by category shows assets held at fair value through profit or loss of US$197,804,000 (2016 - US$ 173,104,000), deposits and receivables of US$14,332,000 (2016 - US$36,586,000) and other financial liabilities totalling US$4,979,000 (2016 - US$1,209,000).

 

21.	Related party transactions
	Directors' fees and interests
	Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report in the Annual Report.
	Transactions with Service Providers
	During the year, the Company had an agreement with AFML for the provision of management services. AFML also acts as the alternative investment fund manager (AIFM) of the Company and delegates the portfolio management of and the provision of promotional activities for the Company to AAML. AFML and AAML are all wholly owned subsidiaries of AAM PLC. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 5 and 6.
	As at 31 March 2017, the Company had holdings amounting to US$2,037,000 (2016 - US$27,557,000) in Aberdeen Liquidity Funds which are managed and administered by AAML. The Company pays a management fee of 0.9% per annum on the value of these holdings but no fee is chargeable at the underlying fund level. Details of these holdings can be found within the Investment Portfolio.

 

22.	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.

 

23.	Exchange rates
	As at 31 March 2017 and 31 March 2016, the exchange rates used (against US$) in preparation of these financial statements are as follows:
		2017	2016
		US$	US$
	Sterling	1.2505	1.4373
	Euro	1.0696	1.1396
	Swedish Krona	0.1120	0.1234

 

24.	Geographical analysis
	Geographic breakdown is determined by the geographical area in which each Fund has indicated that it will invest:
		2017	2016
		US$m	US$m
	Global	70.6	59.3
	North America	64.9	67.6
	Europe	38.1	31.7
	Asia & Other	24.2	14.5
	The Company engages in a single segment of business as detailed in note 3 to the financial statements and geographical analysis is provided as supplemental information.

 

25.	Subsequent events
	On 10 April 2017 the Company committed £2.2 million to co-invest in BP INV3 L.P.
	Other than this there were no material subsequent events.

 

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 2016. 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 2017 will be filed in due course.

 

The Annual General Meeting of the Company will be held at 10.30 a.m. on 15 September 2017 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 during 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

26 June 2017