1. Risks arising from the nature of investments in Private Equity:
- Private equity investments typically display uncertainties which do not exist to the same extent in other investments (e.g. listed securities). Private equity investments may be in entities which have only existed for a short time, which have little business experience, whose products do not have an established market, or which are faced with restructuring etc. Any forecast of future growth in value may therefore often be encumbered with greater uncertainties than is the case with many other investments.
- While private equity investments offer potentially significant capital returns, funds and companies may face business and financial uncertainties. There can be no assurance that their use of the financing will be profitable to them or to any Fund. Investing in private equity and venture capital funds and unlisted companies entails a higher risk than investing in companies listed on a recognised stock exchange or on other regulated markets. This is in particular because of the following circumstances:
- The Fund may invest directly and indirectly in less established companies, which may subject it to a greater risk of loss. Such companies do not have any prior operating history. There can be no assurance that the managers of such companies will be able to meet their objectives. There can be no assurance that any such investment completed by the Fund will provide returns commensurate with the risk of investing in such companies.
- The Fund's co-investments may afford it only limited rights as a shareholder and, as a result, it may be unable to protect its interests in such investments. The Company may have little or no control over the structure or features of a co-investment, and as a result, will rely on the skills and capabilities of the (third party) investment managers selecting, evaluating, structuring, negotiating and monitoring the underlying (co) direct investment. In addition, in certain private equity funds in which the Fund may invest, other investors may be able to vote to cause a liquidation of such fund at a time when the Fund would not have so voted.
- Unlisted companies are often highly dependent on the skills of a small group of managers/directors. These companies often have limited resources. An investment in the Fund should be thought of as a long-term investment.
2. Investments in private equity funds and funds of private equity funds:
- The Fund is permitted to invest in private equity funds and fund of private equity funds established in jurisdictions where no or limited supervision is exercised on such funds by regulators. Further, the efficiency of any supervision may be affected by a lack of precision of investment and risk diversification guidelines applicable to, and the flexibility of the investment policies pursued by, such funds.
- This absence of supervision at both the level of the fund of funds and the underlying funds may result in a higher risk for the Shareholders.
- Shareholders in the Fund will bear indirectly the management and advisory fees charged by the investment managers of the various private equity funds, funds of private equity funds and listed private equity investments in which the Fund invests.
- It is possible that, even at times when the Fund has a negative or zero performance, the Fund will, indirectly, bear performance fees levied within individual Private Equity Funds, Funds of Private Equity Funds and Listed Private Equity Investments.
3. Redemption requests:
Investments in private equity interests companies can be difficult to sell quickly, which may affect the value of the Fund and its ability to meet redemption requests upon demand.
4. Liquidity risk:
- Private equity investments are often illiquid long-term investments that do not display the liquidity or transparency characteristics often found in other investments (e.g. listed securities).
- Securities or other financial assets that the Fund may invest into may be difficult to sell. The eventual liquidity of all investments will depend on the success of any realisation strategy proposed. Such strategies could be adversely affected by a variety of factors. There is a risk that the Fund may be unable to realise its investment objectives by sale or other disposal at attractive prices or at the appropriate times or in response to changing market conditions, or will otherwise be unable to complete a favourable exit strategy. Losses may be realised before gains on disposals. The return of capital and the realisation of gains, if any, will generally occur only upon the partial or complete disposal of an investment.
- It may be difficult to dispose of investments made in unlisted companies. A realisation of investments in unlisted companies may be achieved by way of public offerings or sales to joint venture partners, strategic partners or other investors. However, any realisation of the investment of a Fund in a company may require the agreement of other shareholders in the company, or the consent of the board of directors of the company, or the approval of the relevant authorities. The timing and profitability of the exit strategy for direct investments can be negatively affected by external economic factors beyond the control of the Fund.
- There is no established market for secondary investments and although there has been an increasing volume of secondary investment opportunities in recent years, no liquid market has developed nor is one expected to develop.
5. Valuation risk
It may be difficult to find appropriate pricing references in respect of unlisted investments. This difficulty may have an impact on the valuation of the portfolio of investments. Certain investments are valued on the basis of estimated prices and therefore subject to potentially greater pricing uncertainties than listed securities.
6. Risk Factors Relating to Industry Sectors / Geographic Areas:
Funds that focus on a particular industry or geographic area are subject to the risk factors and market factors which affect this particular industry or geographic area, including legislative changes, changes in general economic conditions and increased competitive forces. This may result in a greater volatility of the Net Asset Value of the Shares of the relevant Fund. Additional risks may include greater social and political uncertainty and instability; and natural disasters.
7. Risk Factors Relating to concentration of investments risks:
Although it will be the policy of the Company to diversify its investment portfolio, a Fund may at certain times hold relatively few investments. The Fund could be subject to significant losses if it holds a large position in a particular investment that declines in value or is otherwise adversely affected, including default of the issuer.