FAIR OAKS INCOME LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Contents
Company Overview
Highlights
Summary Information
Strategic Review
Chairman’s Statement
Investment Adviser’s Report
Strategic Report
Governance
Board of Directors
Disclosure of Directorships in Public Companies
Listed on Recognised Stock Exchanges
Directors’ Report
Corporate Governance
Statement of Directors’ Responsibilities
Directors’ Remuneration Report
Report of the Audit Committee
Management Engagement Committee Report
Financial Statements
Independent Auditor’s Report
Statement of Comprehensive Income
Statement of Changes in Shareholders’ Equity
Statement of Financial Position
Statement of Cash Flows
Notes to the Financial Statements
Additional Information
Portfolio Statement (unaudited)
Management and Administration
Appendix – Alternative Performance Measures
used in the Annual Report (unaudited)
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80
82
83
COMPANY OVERVIEW
Highlights
•
•
•
•
•
1
2
3
4
¹
Fair Oaks Income Limited’s (the “Company”) Net
Asset Value (“NAV”) return per 2021 Share was
12.98% (31 December 2022: -0.90%) for the year
ended 31 December 2023 on a total return basis
(with dividends reinvested). The NAV return per
Realisation Share was 13.82% (31 December
2022: 0.5%) for the year ended 31 December 2023
on the same basis.
¹
the Company’s total
As at 31 December 2023,
market
capitalisation was US$238.6 million,
comprising US$210.1 million of 2021 Shares and
US$28.4 million of Realisation Shares.²
The Company’s 2021 shares closed at a last-price
of US$0.5500 on 31 December 2023 (31
December 2022: US$0.4900). The 2021 Shares
traded at an average discount to NAV of 11.71%
during the year ended 31 December 2023 (31
December 2022: Discount 10.15%).
The Company’s Realisation shares closed at a last-
price of US$0.5700 on 31 December 2023 (31
December 2022: US$0.5650). The Realisation
Shares traded at an average discount to NAV of
4.29% during the year ended 31 December 2023
(31 December 2022: Premium 1.30%).
The Company declared dividends of 8.00 US cents
per 2021 Share and Realisation Share in the year
ended 31 December 2023 (31 December 2022:
9.50 US cents per 2021 Share and Realisation
Share).
Financial Highlights
2021 Shares
Net Assets
Net Asset Value per share
Share last-price at
year end
Discount to Net Asset
Value
Ongoing charges figure
(2021 Shares only)³
Ongoing charges figure
(look through basis)⁴
31 December 2023
31 December 2022
US$215,416,244
US$230,390,880
US$0.5638
US$0.5721
US$0.5500
US$0.4900
(2.45%)
(14.35%)
0.45%
1.37%
0.34%
1.38%
Realisation Shares
Net Assets
Net Asset Value per share
Share last-price at year
end
Discount to Net Asset
Value
Ongoing charges figure
(Realisation Shares only)³
Ongoing charges figure
(look through basis) ⁴
31 December 2023
31 December 2022
US$28,523,929
US$0.5715
US$31,954,409
US$0.5749
US$0.5700
US$0.5650
(0.26%)
(1.73%)
0.41%
1.32%
0.35%
1.34%
See “Appendix” on pages 83 to 86.
Market capitalisation calculated based on the closing 2021 Share price and Realisation Share price at 31 December 2023.
Total ongoing charges, calculated in accordance with the AIC guidance, is at the Company level only for the period divided by the average NAV for the year. Charges of the
underlying Master Funds are not included. See “Appendix” on pages 83 to 86.
Total ongoing charges, calculated in accordance with the AIC guidance, including the Company and the underlying funds divided by the average NAV for the year. See “Appendix” on
pages 83 to 86.
1 .
COMPANY OVERVIEW
Summary Information
Principal Activity
the
The Company was registered in Guernsey under
Companies (Guernsey) Law, 2008 on 7 March 2014. The
Company’s registration number is 58123 and it is regulated
by the Guernsey Financial Services Commission as a
registered closed-ended collective investment scheme
under The Registered Collective Investment Scheme Rules
and Guidance 2021. The Company began trading on the
Specialist Fund Segment (“SFS”) of
the London Stock
Exchange on 12 June 2014.
Reorganisation
On 19 April 2021, the Company announced the result of its
reorganisation proposal, being that 62,562,883 2017
Shares had been elected for re-designation as Realisation
Shares (the “Realisation Shares”), representing 13.4% of
the 2017 Shares in issue, and 405,815,477 2017 Shares
were re-designated as 2021 Shares (the “2021 Shares”),
representing the balance of 86.6% of the 2017 Shares in
issue (including 650,000 shares held in Treasury). The
Company makes its investments through FOIF II LP (the
“Master Fund II”) and FOMC III LP (the “Master Fund III”),
in both of which the Company is a limited partner (the
“Master Fund II” and the “Master Fund III” together the
“Master Funds”). The Master Fund II was registered in
Guernsey on 24 February 2017 and the Master Fund III
was registered in Guernsey on 10 March 2021 under The
Limited Partnerships (Guernsey) Law, 1995. The purpose
of the reorganisation was to allow those Shareholders who
wished to extend the life of
in the
Company beyond the planned end date of the Master Fund
II, to be able to do so by having their 2017 Shares re-
designated as 2021 Shares, with such 2021 Shares
investing in the new Master Fund III, which has a planned
end date of 12 June 2028 and an investment objective and
policy substantially similar to that of the Master Fund II.
investment
their
On 5 July 2023 and 20 December 2023, the Company
returned US$1,155,020 and US$2,099,990 by way of a
compulsory partial
redemptions of Realisation Shares,
which amounted to 1,997,560 and 3,674,523 Realisation
Shares (31 December 2022: US$3,999,990 compulsory
partial redemption amounted to 6,984,442 shares). During
the year ended 31 December 2023 the Company bought
back 20,699,431 2021 shares for US$10,468,165 (31
December 2022: 2,455,977 shares for US$1,196,717). At
31 December 2023,
the Company has 49,906,358 (31
December 2022: 55,578,441) Realisation Shares and
382,010,069 (31 December 2022: 402,709,500) 2021
Shares in issue. The Realisation Shares invest solely into
the Master Fund II and the 2021 Shares invest solely into
the Master Fund III.
At 31 December 2023, the Company had direct holdings
of 9.59% (31 December 2022: 9.59%) in the Master Fund
II and 95.43% holding in Master Fund III (31 December
2022: 95.32%), which in turn had a holding of 62.21% in
the Master Fund II
(31 December 2022: 62.21%).
Together, the Company held a direct and indirect holding
of 68.96% in the Master Fund II (31 December 2022:
68.89%).
The Master Funds
At 31 December 2023, the Master Fund II had six limited
partners (31 December 2022: six limited partners),
including Fair Oaks Founder II LP, a related entity. At 31
December 2023, the Master Fund III had three limited
partners (31 December 2022:
three limited partners),
including Fair Oaks Founder VI LP. The General Partner
of the Master Fund II and Master Fund III is Fair Oaks
Income Fund (GP) Limited (the “General Partner” or
“GP”).
Cycad and Wollemi
The Master Fund II and Master Fund III is also invested
into Cycad Investments LP (“Cycad”). Cycad is a Limited
Partnership registered in the United States of America on
2 June 2017. Aligned with the Company’s investment
policy, Cycad also invests into Collateralised Loan
Obligations (“CLOs”). On 9 March 2021, a Guernsey
limited partnership was established called Wollemi
Investments I LP (“Wollemi”) also investing in CLOs. At 31
December 2023, the Master Fund II holds 89.43% (31
December 2022: 100%) and Master Fund III holds
10.57% (31 December 2022: 0%) of
the commitment
capital of Wollemi.
Founder Partners
Fair Oaks Founder II LP, a Guernsey limited partnership,
has been established to act as the Founder Limited
Partner of Master Fund II. Fair Oaks Founder VI LP, a
Guernsey limited partnership, has been established to act
as the Founder Limited Partner of Master Fund III.
Investment Objective and Policy
The investment objective of the Company is to generate
through
attractive,
income distributions.
risk-adjusted
principally
returns,
The investment policy of the Company is to invest (either
directly and/or indirectly through the Master Fund II and/or
Master Fund III) in US, UK and European Collateralised
Loan Obligations
vehicles and
structures which provide exposure to portfolios consisting
primarily of US and European floating-rate senior secured
loans and which may include non-recourse financing.
(“CLOs”) or other
2 .
COMPANY OVERVIEW
Summary Information
Investment Objective and Policy (continued)
The Company implements its investment policy by:
1.
2.
with respect to those assets of the Company attributable to
the Realisation Shares: investing in Master Fund II; and
with respect to those assets of the Company attributable to
the 2021 Shares and any future C Shares:
investing in
Master Fund III.
If at any time the Company holds any uninvested cash, the
Company may also invest on a temporary basis in the following
Qualifying Short Term Investments:
•
•
•
•
•
•
cash or cash equivalents;
government or public securities (as defined in the Financial
Conduct Authority (“FCA”) Rules);
money market instruments;
bonds;
commercial paper; or
other debt obligations with banks or other counterparties
having a single A rating or (if a fund) investing with no
leverage in assets rated at least single A, according to at
least one internationally recognised rating agency selected
by the Board of Directors (the “Board”) (which may or may
not be registered in the EU).
The aggregate amount deposited or invested by the Company
with any single bank or other non-government counterparty
(including their associates) shall not exceed 20% of the Net
Asset Value (“NAV”) in aggregate, and also of the NAV of each
share class, at the time of investment. The Company cannot
make any other
investments without shareholder
consent to a change of investment policy by ordinary resolution
at a general meeting of the Company.
types of
3 .
STRATEGIC REVIEW
Chairman's Statement
The independent Board of the Company is pleased to present its Annual Report and Financial Statements for the financial period
ended 31 December 2023.
The Company’s 2021 Share NAV and share price generated a total return (with dividends reinvested) of +12.98% and +30.94%
respectively in 2023. The Company’s 2021 Shares closed at a last-price of 55.00 US cents as of 31 December 2023, representing a
discount to NAV of -2.45%.
The Company’s Realisation Share NAV and share price generated a total return (with dividends reinvested) of +13.82% and +16.09%
respectively. The Company’s Realisation Shares closed at a last-price of 57.0 US cents as of 31 December 2023, representing a
discount to NAV of -0.26%.
Figure 1.1 – Total return: 2021 Shares NAV and share price in 2023
The total return for the JP Morgan US leveraged loan index in 2023 was +13.17%¹.
total return was +13.77%² while the JP Morgan US CLO B rated index returned +26.77%³.
In the same period, the JP Morgan US high yield
Table 1.2 – Total returns in 2023¹¯³
Company's 2021 NAV
Company's 2021 Share price
J.P. Morgan US Leveraged Loan index
J.P. Morgan US High Yield index
J.P. Morgan Post-Crisis CLOIE B rated index
FY 2023 total return
+12.98%
+30.94%
+13.17%
+13.77%
+26.77%
Cash flow and dividends
The CLOs in which the Master Funds holds control CLO equity investments have experienced an annualised default rate since
inception of 0.31%⁴ and had CCC and below exposure of 5.58%⁵ as at 31 December 2023 both well below the market’s average of
1.79%⁶ and 7.09%⁷ , respectively. As a result of the strong fundamental performance of the portfolio, all CLO equity and debt
investments made their scheduled distributions in 2023.
1. J.P. Morgan. Leveraged Loan Index Summary Market Index Value. Data as at 31 December 2023.
2. J.P. Morgan. Domestic HY Summary Market Index Value. Data as at 31 December 2023.
3. J.P. Morgan. CLO B Post-Crisis Unhedged (USD) Cumulative Total Return. Data as at 31 December 2023.
4. Fair Oaks Capital Limited ("Fair Oaks Capital") data. Annualised default rate of the control CLO equity positions since inception. Data as at 31 December 2023.
5. Intex. CCC+, CCC and CCC- rated assets (S&P). Based on loan facility rating from S&P. Data as at 31 December 2023.
6. Average based on PitchBook LCD’s US Leveraged Loan Index lagging 12-month loan default rate based on principal amount, since Jun-14. Data as at 31 December 2023.
7. Pitchbook LCD. Data as at 31 December 23.
4 .
STRATEGIC REVIEW
Chairman's Statement
Cash flow and dividends (continued)
The Company paid 8.0 US cents in dividends per 2021 share in respect to the year ending December 2023. The dividends are well-
covered by the distributions received by the Master Funds. The dividend yield for the 2021 Shares was 14.5% as of the end of
December, based on the closing share price.⁸
Figure 1.3 – Cumulative dividends per share since inception (US cents per 2021 Share)
The quality of the Master Funds’ portfolio and the robustness of the CLO structure are evidenced by its resilience. As an example, the
expected gross returns for the Master Funds (based on current NAV) under stress scenarios based on the 2000 and 2008 periods are
8.1% and 8.7% respectively⁹
(noting that defaults around 2000 were concentrated in telecom and technology sector so diversified
CLOs would have suffered lower default rates). These scenarios apply actual historical defaults, recovery rates, CCC balances/prices,
prepayment rates, interest rates and reinvestment assumptions for each period.
Share buyback programme
The Board continued through the financial period to implement the Company’s share buyback programme in the 2021 Shares,
repurchasing US$20.7 million 2021 Shares equivalent to 5.1% of the issue shares at the start of the year. The 2021 Shares ended the
financial year trading at a 2.0% discount to NAV and have continued to trade relatively close to NAV since the year-end. Subject to the
prevailing price relative to NAV and the granting of the necessary shareholder authorities which will be sought at the forthcoming AGM,
the Board intends on an ongoing basis to buy back and/or issue 2021 Shares with the objective of being accretive to 2021 Shareholder
returns and also positively influencing the discount/premium to NAV and the trading liquidity of the 2021 Shares.
Material Events
On 27 September 2023, the Company was pleased to announce the appointment of Richard Burwood as a non-executive Director of
the Company. The Company went on to state that one of the original Directors of the Company, Professor Claudio Albanese, intended
to retire from the Board by the end of 2023 and, in order to ensure an orderly transfer of responsibilities, Mr Burwood has been
appointed as chairman of the Board ahead of Professor Albanese's retirement.
Further to the announcement made on 27 September 2023, and in line with the Board’s succession plan, the Company announced
that Professor Albanese had resigned as a Non-Executive Director of the Company effective close of business on 31 December 2023.
Richard Burwood
Chairman
18 April 2024
8. Dividend yield is calculated using the most recent dividend annualised and Fair Oaks Income Fund 2021 share price as at 31 December 2023.
9. Fair Oaks Capital analysis based on FAIR portfolio. Analysis based on Intex. Additional details and modelling assumptions available on request. Data as at 31 December 2023.
5 .
STRATEGIC REVIEW
Investment Adviser’s Report
Portfolio Review
As at 31 December 2023, the Master Funds held 19 CLO equity positions and 13 CLO mezzanine investments offering exposure to
1,430 loan issuers¹ and 20 CLO managers. Control CLO equity positions represented 84.0% of the portfolio’s market value.²
Figure 2.1 – Portfolio composition of the Master Funds³
Figure 2.2 – Historical rating breakdown (excl. cash)⁴
While no new CLO Equity and Mezzanine investments were completed in 2023, the Master Funds have committed to the opening of
a CLO warehouse investing in European broadly syndicated loans. Additionally, the Master Funds sold one mezzanine position
during 2023, which was initially purchased opportunistically during 2020, achieving an IRR of 14%.
Figure 2.3 – Currency breakdown (excl. cash)⁴
1. As at 31 December 2023. Based on the underlying loans in CLOs held by the Master Funds.
2. As at 31 December 2023. Percentage by market value of control CLO equity positions.
3. Fair Oaks Capital as at 31 December 2023. Breakdown by market value of the CLO investments held by the Master Funds which includes its share in Wollemi Investments I LP (“Wollemi LP”).
4. Fair Oaks Capitals’ data on Original CLO ratings at month-end. NAV weighted. Historical breakdown excludes cash. Fair Oaks Income Fund monthly reports, RNS statements, trustee reports; as at 31 December 2023.
6 .
STRATEGIC REVIEW
Investment Adviser’s Report
Portfolio Review (continued)
The active management of the portfolio was instrumental to allow the Master Funds to de-risk while taking advantage of tactical
market opportunities in 2016 and 2020, which generated efficient risk-adjusted and asymmetric returns.
ESG considerations also impacted the Company’s asset allocation. All control CLO equity investments (including reset and
refinancings) completed since July 2019 have included ESG exclusion criteria in the CLO’s documentation. CLO investments
subject to ESG investment criteria represented 76.8% of all CLO equity investments in the portfolio as of the end of 2023.⁵
Figure 2.4 – CLO equity investments subject to ESG investment restrictions⁵
Figure 2.5 – CLO manager diversification of the Master Funds ⁶
Figure 2.6 – Collateral geographical (top five) and currency breakdown⁷
5. The proportion of the Company’s investments which include ESG-focused investment criteria is being reported as per the Company’s investments with ESG-focused investment criteria as defined by Fair Oaks Capital.
6. Based on market value of the CLO investments, as at 31 December 2023. The number of investments is shown in parentheses after each manager name.
7. Intex as at 31 December 2023. Based on loan par value weighted by the Master Funds’ proportional ownership of CLO Notes.
7 .
STRATEGIC REVIEW
Investment Adviser’s Report
Portfolio Review (continued)
Figure 2.7 - Industry diversification by Moody’s (top 10)⁸
Figure 2.8 - Rating breakdown⁹
In Fair Oaks Capitals’ opinion, the focus on originating and controlling CLO subordinated note investments has resulted in superior
fundamental performance. Lower fees in primary investments also allowed the construction of more conservative portfolios with no
need to “stretch for yield”. As a result, the Master Funds have benefited from below-average exposure to sectors such as retail or
energy.
Figure 2.9 compares the annualised equity distributions received by the Master Fund II with the US market median. While there is
some variability in distributions from quarter to quarter due to differing payment periods, equity distributions in October 2022 and
January 2023 were impacted by the mismatch between one-month and three-month LIBOR, as borrowers opted to benchmark loans
to the shorter rate while CLO liabilities remained based on three-month LIBOR.
Figure 2.9 – Annualized Equity Distributions (over par)¹⁰
8. Intex as at 31 December 2023. Based on Moody’s sectors and loan par value weighted by the Master Funds’ proportional ownership of CLO Notes.
9. Intex as at 31 December 2023. Based on S&P’s deal ratings and loan par value weighted by the Master Funds’ proportional ownership of CLO Notes. Due to rounding errors, the percentages may not sum to 100%.
10. Intex, Barclays as at 31 October 2023. Based on annualised quarterly distributions (as a percentage of par) of US equity notes directly held by the Master Funds.
8 .
STRATEGIC REVIEW
Investment Adviser’s Report
Portfolio Review (continued)
Figure 2.10 – Overcollateralisation test headroom¹¹
Looking at the sustainability of these cashflows, the OC test headroom, which determines whether distributions may be temporarily
diverted from the CLO Equity, remains covered, reducing the potential for any future cash-flow diversion. As was expected for
certain US investments which have now exited their reinvestment periods, this headroom has declined in 2023. The average CLO
equity test value is 4% above its threshold. Assuming 70 percent recovery in case of default, it would require in excess of 12%
cumulative defaults to generate the par loss required to erode 4% headroom, before considering the positive effect of any cash-flow
diversion.¹¹
US Loan Market Update
The trailing 12-month loan default rate rose to 1.53% in the US (from 0.72% in December 2022). The US distress ratio (loans trading
indicator of the direction of future defaults) decreased from 9.59% in December 2022 to 6.36% in
below US$80c, a potential
December 2023.¹²
According to Pitchbook LCD’s December 2023 quarterly survey of market participants, the expectation is that the US loan default
rate, at the end of 2024, will be between 2.5% and 3.0% in the US. Forecasts from rating agencies and bank research range from
3.0% to 5.0%.¹³
Figure 2.11 – US loan default rate¹²
The average bid price of the LSTA US leveraged loan index was US$96.21c at the end of 2023, compared to US$92.44c at the end
of 2022.
11. Intex as at 31 January 2024.
12. PitchBook LCD as at 31 December 2023. LSTA US leveraged loan index. Distress ratio by issuer count and default rate by principal amount.
13. PitchBook LCD as at 15 December 2023. LCD’s Quarterly Leverage Finance Survey. 2024 forecasts from Year-end 2023 reports: JP Morgan, Barclays, Morgan Stanley, BNP Paribas, Bank of America, Deutsche Bank, S&P and Fitch.
9 .
STRATEGIC REVIEW
Investment Adviser’s Report
US Loan Market Update (continued)
Figure 2.12 - US loan price distribution¹⁴
Figure 2.13 –Average bid price of US leveraged loans, BB and B rated loans¹⁴
There were net outflows of $17.3bn from Prime loan funds in 2023, compared to $13.5bn of outflows in 2022.
Figure 2.14 – Flows into loan funds by year¹⁵
14. Pitchbook LCD as at 31 December 2023. LSTA US Leveraged Loan Index.
15. PitchBook LCD as at 31 December 2023.
10 .
STRATEGIC REVIEW
Investment Adviser’s Report
US Loan Market Update (continued)
At the start of 2023, loans maturing within the next two years represented a recent historical high of 5.9%, a proportion not seen
since year-end 2012. Despite tightening credit conditions, loan maturities were successfully pushed out through ‘amend and extend’
transactions and alternative sources of capital – contributing to the lower-than-expected default rate at the end of 2023. The notional
of US loans maturing in 2024-2025 has fallen from $273bn as of year-end 2022 to $93bn as of year-end 2023 (Figure 2.15).
Private credit has competed for large refinancing transactions in the broadly syndicated loan market as a consequence of large
capital inflows into the asset class. We believe this willingness to underwrite loans which were challenging to refinance in the broadly
syndicated loan market has had a beneficial effect by creating a positive quality bias in the loan market.
Figure 2.15 – Maturity wall of the US loan market of performing loans ($billion)¹⁶
European Loan Market Update
The trailing 12-month loan default rate increased to 1.62% in Europe (from 0.42% in December 2022). The European distress ratio
(loans trading below €80c, a potential indicator of the direction of future defaults) decreased from 9.91% in December 2022 to 4.32%
in December 2023.¹⁷
European loan default rate forecasts from rating agencies and bank research for 2024 range from 2.5% to 4.0%. ¹⁸
Figure 2.16 – European loan default rate¹⁷
16. PitchBook LCD as at 31 December 2023. LSTA US LLI maturity breakdown.
17. PitchBook LCD as at 31 December 2023. European leveraged loan index. Distress ratio by issuer count and default rate by principal amount.
18. 2024 forecasts from Year End 2023 reports: JP Morgan, Barclays, Bank of America, Deutsche Bank, S&P, Fitch and Moody’s.
11 .
STRATEGIC REVIEW
Investment Adviser’s Report
European Loan Market Update (continued)
The average bid price of the Morningstar European Leveraged Loan Index was €96.02c at the end of 2023, compared to €91.34c at
the end of 2022.
Figure 2.17 – ELLI distress ratio¹⁹
Figure 2.18 - Average bid price of European leveraged loans, BB and B rated loans²⁰
In Europe, the notional of European loans maturing in 2024-2025 has fallen from €61bn as of year-end 2022 to €13bn as of year-
end 2023 (Figure 2.19). The proportion of loans due in the next two years is lower than that at the start of 2023 (4.7% vs 8.2%)
largely due to a similar dynamic observed in the US, as the loan market addresses near-term maturities through ‘amend and extend’
transactions and alternative sources of capital.
Figure 2.19 – Maturity wall of the European loan market of performing loans (€bn)²¹
19. PitchBook LCD as at 31 December 2023. European leveraged loan index. Distress ratio by issuer count and default rate by principal amount.
20. Pitchbook LCD as at 31 December 2023. Morningstar European Leveraged Loan Index.
21. PitchBook LCD as at 31 December 2023. Morningstar European Leveraged Loan Index. Distribution by year of maturity.
12 .
STRATEGIC REVIEW
Investment Adviser’s Report
US CLO Market Update
US primary CLO new issuance was $116bn in 2023, compared to $129bn in 2022. 2023 refinancings and resets totalled $5bn (14
deals) and $20bn (43 deals), compared to $5bn (12 deals) and $20bn (35 deals) in 2022. Forecasts for CLO new issuance in 2024
are $110-115bn and forecasts for refi/reset volume are $40-50bn.²²
Figure 2.20 – US CLO new issue volume²³
Figure 2.21 – US CLO AAA primary spreads (bps)²⁴
European CLO Market Update
The European CLO market saw new issuance of €27bn in 2023, which is the same level of issuance as in 2022. 2023 refinancings
and resets totalled €0bn and €2bn (5 deals), compared to €2bn (5 deals) and €5bn (11 deals) in 2022.²⁵ Forecasts for European
CLO new issuance in 2024 are in the range of €25-30bn and forecasts for 2024 refi/resets are €8-10bn.²⁶
22. PitchBook LCD as at 31 December 2023. 2024 forecasts from year-end 2023 reports: JP Morgan, BNP Paribas, Barclays, Citi.
23. PitchBook LCD as at 31 December 2023. CLO databank.
24. JP Morgan as at 31 December 2023. US CLO AAA primary spreads
25. Pitchbook LCD. CLO Global Databank. Data as at 31 December 2023.
26. 2024 forecasts from YE-23 reports: JP Morgan, Barclays, Citi, BNP Paribas, Bank of America.
13 .
STRATEGIC REVIEW
Investment Adviser’s Report
European CLO Market Update (continued)
Figure 2.22 – EUR CLO new issue volume²⁷
Figure 2.23 - EUR AAA primary spreads (bps)²⁸
CLO issuance in Europe was unexpectedly high given the unattractive CLO arbitrage during much of 2022 and 2023. This can be
attributed to existing managers using previously raised captive equity funds to support CLO issuance and a high number of new
managers entering the market. The tightening of liabilities over 2023 has created a more constructive outlook for CLO issuance in
2024 as CLO equity returns look more attractive.
Given the relative value and operational simplicity of CLOs, we believe that investor interest in CLO debt will continue to support
demand. Whereas CLO notes can be settled on a T+2 basis using Clearstream or DTC, loan settlements are challenging and can
be subject to long delays.
Outlook
We believe that the Company and the Master Funds are well positioned to generate attractive risk-adjusted returns in 2024:
•
•
Stable and attractive dividend yield: current dividend yield of 14.5%.²⁹
Interest rate expectations: Fed and ECB rate cuts may support investor demand for risk assets, potentially supporting CLO
liabilities. The potential for lower CLO financing rates will support new CLO equity investments and the optimisation of the capital
structure of existing CLO equity investments.
Existing, high-quality portfolio: all CLO equity and debt investments made their scheduled distributions in 2023.
Strong sourcing ability: the Master Funds benefits from strong, long-term relationships with CLO managers, including preferential
access to Fair Oaks Capital-managed CLOs.
Structural advantages: supported by a rigorous valuation policy and fixed life of the Master Funds.
•
•
•
27. Pitchbook LCD. CLO Global Databank. Data as at 30 June 2023.
28. JP Morgan as at 31 December 2023. European CLO AAA primary spreads.
29. As at 31 December 2023.
14 .
STRATEGIC REVIEW
Investment Adviser’s Report
Outlook (continued)
We continue to believe that the high-quality portfolio of primarily first-lien, senior secured loans with attractive term, non-mark-to-
market financing represents one of the most attractive risk-adjusted opportunities available to investors in the current market
environment.
Fair Oaks Capital Limited
18 April 2024
15 .
STRATEGIC REVIEW
Strategic Report
Risks and uncertainties
The Board of Directors is responsible for and has in place a rigorous risk management framework and risk matrix to identify, assess,
mitigate, manage, review and monitor those risks. This is all reviewed at least quarterly by the board and on a much more frequent
basis by the Investment Adviser.
The Directors have carried out a robust assessment of the principal, secondary and emerging risk areas relevant to the performance
of the Company including those that would threaten its business model, future performance, solvency and liquidity. The principal risks
are detailed below.
Throughout the year, due regard has been paid to emerging risks, although during the period changes to the identified risks can be
characterised as being more of an evolving nature than new and previously unidentified risks. After considering the risks associated
with relevant uncertainties created by emerging risks (including the impact on markets and supply chains of geopolitical risks such as
the current crisis in Middle East and, and continuing macro-economic factors and inflation), the Board believes that the Company and
the Master Funds are well placed to manage its business risks successfully. The Board is in regular communication with the
Investment Adviser who continues to closely monitor the performance of the respective investments of the Master Funds and update
the Company on current and emerging risks.
In respect of the Company’s system of internal controls and reviewing its effectiveness, the Directors:
•
•
are satisfied that they have carried out a robust assessment of the principal and emerging risks facing the Company, including
those that would threaten its business model, future performance, solvency or liquidity; and
have reviewed the effectiveness of the risk management and internal control systems including material financial, operational and
compliance controls (including those relating to the financial reporting process) and no significant failings or weaknesses were
identified.
The Risk Committee reviews the Company’s overall risks at least four times a year and monitors the risk control activity designed to
mitigate these risks.
Principal and emerging risks
The principal and emerging risks associated with the Company include:
Risk/Description
Investment and financial risk - Market risk -
Increased
Market risk is the risk of changes in market prices affecting the
Company’s income and/or the value of its investments. This is
impacted by a variety of
factors including macro-economic
conditions, increased default rates, higher interest rate spreads,
exchange rates, inflation and general market pricing of similar
CLO investments which will all effect the Company and its Net
Asset Value.
The Company’s exposures to market risk mainly comes from
movements in the fair value of
its investments in the Master
Funds and on a look-through basis to the underlying CLO
investments.
Control / Mitigation
This risk cannot be mitigated in full but
the impact can be
reduced by diversification of the underlying CLO portfolio. The
Company’s objective of market risk management is to manage
and control market risk exposures within acceptable parameters
while optimising the return on investments.
The Company’s market risk is monitored closely and managed
and mitigated as far as possible by the Investment Adviser
through active portfolio management and the maintenance of a
diversified investment portfolio.
the Company at
the investment
The Risk Committee formally monitors
times a year,
performance of
including when the Investment Adviser
reports on the
performance of the Company’s portfolio at the Board meetings.
The investment guidelines and restrictions, as detailed in the
prospectus of the Company, ensures adequate diversification of
the Master Funds’ underlying investments.
least
four
16 .
STRATEGIC REVIEW
Strategic Report
Principal and emerging risks (continued)
Risk/Description (continued)
Investment and financial risk - Credit risk -
Increased
Credit risk arises principally from debt securities held. The risk is
that underlying CLO investments or financial assets held by the
Company default, leading to investment losses, a reduction in
in the
cash flows receivable by the Master Funds and a fall
Company’s NAV. For the Company this is impacted by a variety
of factors including deterioration in underlying credit ratings and
credit ratings of counterparties and the secondary market for CLO
investments maybe less liquid. The Company considers and
aggregates all elements of credit risk exposure, such as individual
obligation default risk, country risk and sector risk.
Financial risk – Counterparty risk – Increased
Counterparty risk can arise through the Company’s exposure to
particular counterparties for executing transactions and the risk
that the counterparties will not meet their contractual obligations.
Control / Mitigation (continued)
The Company’s policy on credit risk mirrors that of the Master
Funds’, which is to minimise its exposure to counterparties with
risk of default by dealing only with
perceived higher
counterparties that meet
in the
the credit standards set out
Company’s prospectus, and by taking collateral.
The high rates of global inflation seen in 2023 have increased
the cost of raw materials and labour for many companies. While
most companies have demonstrated a strong ability to pass
costs on to their customers, continued high rates of inflation
increase the risk of a drop in profit margins and cash flow and
an increase in the risk of default. Simultaneously, the sharp
increase in USD and Euro interest rates seen in 2023 has
increased the interest cost for borrowers of the loans held by
CLOs. This is likely to contribute to an increase in financial
distress at borrowers and a resulting increase in the loan default
rate. While the valuation and the projected returns of CLO
investments always assume some loan defaults, a prolonged
period of elevated defaults could have a significant negative
impact on the cash flows received from and the valuations of
CLO investments held by the Master Funds. The Investment
Adviser carries out extensive due diligence on the Master
Funds’ underlying CLO investments and monitors credit ratings
performance regularly. Credit risk is mitigated as far as possible
by the Investment Adviser through active portfolio management
and the maintenance of a diversified investment portfolio. The
Investment Adviser seeks to achieve this diversification of the
portfolio for this risk in terms of underlying assets,
industry
concentration, geography and maturity profile, please see the
Investment Adviser’s Report and the Note 5 of the Financial
Statements for further details of this diversification.
Counterparty exposures are monitored by the Investment
Adviser and movements reported regularly to the Board. The
Company’s cash management policy ensures cash and cash
equivalents are only to be placed with designated institutions
in the Company’s
that meet
prospectus.
the aggregate amount deposited or
invested by the Company with any single bank or other non-
government counterparty (including their associates) shall not
exceed 20% of the NAV in aggregate, and also of the NAV of
each Share class, at the time of investment.
the credit standards set out
In addition,
17 .
STRATEGIC REVIEW
Strategic Report
Principal and emerging risks (continued)
Risk/Description (continued)
Financial risk – Liquidity risk – Stable
Liquidity risk is the risk that the Company will encounter difficulty
in meeting the obligations associated with its financial
liabilities
that are settled by delivering cash or another financial asset.
The Master Funds’ CLO investments are not publicly traded or
freely marketable, and there may be limited or no secondary
market liquidity, as a result the realisation of assets to create
liquidity in a timely manner maybe difficult.
Operational risk – Stable
The Administrator is in the process of integration into the Apex
the Board are aware that administrative,
Group and as such,
procedural and system changes are ongoing, potentially
increasing exposure to operational errors.
Compliance and regulatory risk – Stable
Compliance and regulatory risk can arise where processes and
followed correctly or where incorrect
procedures are not
judgement causes the Company to be unable to meet
its
objectives or obligations, exposing the Company to the risk of
loss, sanction or action by Shareholders, counterparties or
regulators.
Political and economic risk – Increased
Geopolitical events may have an adverse effect on the Company
and its operations.
The invasion of Ukraine by Russia in February 2022 and recent
escalations of conflict in the Middle East has been an emerging
risk which has caused increased volatility in global
financial
markets and increased expectations of supply chain disruption
and cost inflation for oil, gas, metals, grains, vegetable oils and
other raw materials.
Control / Mitigation (continued)
The Administrator and Investment Adviser
review the
Company’s income and cash flow forecasts on a monthly or ad
the
hoc basis as required to ensure, as far as possible,
Company will always have sufficient
its
liquidity to meet
liabilities when due.
The Board reviews cash flow forecasts quarterly and ad hoc as
required for buy-backs and distributions. Solvency tests are
required prior to the Company making any distributions.
The Board is ultimately responsible for all operational facets of
performance including cash management, asset management,
regulatory and listing obligations. The Company has no
employees and so enters into a series of contracts/legal
agreements with a series of service providers to ensure that
both operational performance and regulatory obligations are
met. The Board performs ongoing internal monitoring of
operational processes and controls and receives regular reports
from the administrators of
the Company and other service
providers, along with a report from the Auditors.
Additional scrutiny has been undertaken on the Administrator's
processes and staffing.
The Company is required to comply with the Prospectus Rules,
the Disclosure Guidance and Transparency Rules and the
Market Abuse Directive (as implemented in the UK through
Financial Services and Markets Authority). Any failure to comply
could lead to criminal or civil proceedings. The Investment
Adviser and Administrator monitor compliance with regulatory
requirements and the Administrator presents a report at
quarterly Board meetings.
The Risk Committee monitors geopolitical risks on an ongoing
basis with
emerging
advice
independent
developments likely to affect the Company.
received
on
The Investment Adviser will continue to monitor the economic
impacts of the conflict in the Middle East. As detailed further in
the Investment Adviser’s Report, while loan and CLO valuations
may be impacted by increased risk premiums across financial
markets, it is not currently expected the CLOs in which the
Master Funds invest
increase in
credit losses as a result of the invasion and its effect on the
global economy.
to experience a significant
18 .
STRATEGIC REVIEW
Strategic Report
Principal and emerging risks (continued)
Risk/Description (continued)
Environmental, Social and Governance (ESG) risk – Stable
future ESG
the Company to identify potential
Failure of
requirements could lead to the Company’s shares being less
attractive to investors. Failure to engage with stakeholders and
actions arising from activist shareholders.
Control / Mitigation (continued)
The Investment Adviser has been a signatory to the UN
Principles for Responsible Investment (“UN PRI”) since July
2016 and is committed to applying the UN PRI to all stages of
its investment criteria. All CLO equity investments completed by
the Master Funds since 2019 have included ESG-related
investment criteria that prohibit investment in certain industry
sectors which are considered to be environmentally or socially
harmful.
The Board,
the Investment Adviser and all other service
providers continue to monitor developments in the ESG
regulatory and reporting requirements and is committed to
increasing awareness in credit markets.
The Board, Investment Adviser and Joint Brokers are engaging
in regular dialogue with the shareholders in order to understand
their views or concerns and to better understand their
investment goals.
Going Concern
The Directors have assessed the financial position of the Company as at 31 December 2023 and the factors that may impact its
performance (including the potential impact on markets and supply chains of geo-political risks such as the current crisis in Middle
East, the continuing macro-economic factors and rising rates of inflation) in the forthcoming year.
Russia/Ukraine crisis
The Master Funds’ CLO investments do not hold any securities in the Russia/Ukraine region and as such the performance or
creditworthiness of the underlying CLOs have not been significantly impacted. Commodity prices due to the invasion of Ukraine
(mainly oil/gas, metals and wheat) have impacted some of the companies to which the CLOs have exposure but many companies
were already subject to input price inflation before the Ukraine invasion and it is not expected that the additional cost inflation will
significantly impact the performance of the CLOs. The Directors with the Company’s Investment Adviser, continue to closely monitor
the situation and the resulting disruption to supply chains, particularly with regard to energy prices.
Middle East crisis
The current conflict in the Middle East region is unlikely to impact the performance or creditworthiness of the underlying CLOs. The
impact of further escalations in the area are continuously monitored by the board, especially the possible impact on oil prices and
supply chain disruptions.
The Investment Adviser continues to carefully monitor the performance of the Master Funds’ investments, working closely with the
Directors on current and emerging risks to the Company.
Following due consideration and after a review of the Company’s holdings in cash and cash equivalents, investments and a
consideration of the income deriving from, and the viability of, the investment in the Master Funds the Directors believe that it is
appropriate to adopt the going concern basis in preparing the Financial Statements, as the Company has adequate financial
resources to meet its liabilities as they fall due.
19 .
STRATEGIC REVIEW
Strategic Report
Viability Statement
The Directors have conducted a robust assessment of the viability of the Company over a three-year period from the date of signing
this report to April 2027, taking account of the Company’s current position and the potential impact of the principal and emerging risks
documented above.
In making this statement, the Directors have considered the resilience of the Company, taking into account its current position, the
principal risks facing the Company in severe but plausible scenarios and the effectiveness of any mitigating actions. This assessment
has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period.
The Directors have determined that the three-year period to April 2027 is an appropriate period over which to provide its viability
statement as this is a reasonable period over which risks relating to the asset class should be considered.
At 31 December 2023, the Company is primarily invested into the Master Fund III. The Master Fund III has a planned end date of 12
June 2028. The Company is also invested into the Master Fund II which has a planned end date of June 2026.
In making their three-year assessment, various factors were taken into consideration by the Directors, which included the Company’s
NAV, net income, capital repayments and resulting cash flows and dividend cover over the period. These metrics were subjected to
stress tests which, in light of the ongoing uncertainty in economies and markets caused by the Ukraine/Russia, conflict in the middle
east crisis, continuing macro-economic factors and rising rates of inflation, involved flexing a number of main assumptions underlying
the forecast and default rates significantly higher than the five-year average. Where appropriate, this analysis was carried out to
impact of the Company’s principal risks actually occurring, primarily, severe changes to macro-economic
evaluate the potential
conditions, increased defaults, deterioration in underlying credit ratings and downgrading or illiquidity of non-investment grade loans.
Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due over the period to April 2027.
Management Arrangements
Investment Adviser
The Directors are responsible for the determination of the Company’s investment policy and have overall responsibility for the
Company’s activities. The Company has, however, entered into an Investment Advisory Agreement with the Investment Adviser under
which the Investment Adviser has been appointed to provide investment advisory services, which include analysing the progress of all
assets and investments of the Company and advising the Company on liquidity and working capital retention issues, subject to the
overriding supervision of the Directors.
The Directors consider that the interests of shareholders, as a whole, are best served by the continued appointment of the Investment
Adviser to achieve the Company’s investment objectives. A summary of these terms, including the investment advisory fee and notice
of termination period, is set out in note 8 of the Financial Statements.
Custody Arrangements
The Company’s underlying assets in Master Fund II are held in custody by BNP Paribas Securities Services S.C.A., Guernsey Branch,
(“BNP”) pursuant to an agreement dated 9 March 2017 and the Company’s underlying assets in Master Fund III are held in custody by
U.S. Bank Global Corporate Trust Services, UK Branch (“US Bank”) (together the “Custodians”), pursuant to an agreement dated 26
March 2021.
The Company’s underlying assets in the Master Fund II and the Master Fund III are registered in the name of the respective
Custodian in each case within a separate account designation and may not be appropriated by the Custodian for its own account.
20 .
STRATEGIC REVIEW
Strategic Report
Management Arrangements (continued)
Custody Arrangements (continued)
The Board conducts an annual review of the custody arrangements as part of its general internal control review. The Board also
monitors the credit rating of the Custodians, to ensure the financial stability of the Custodians are being maintained to acceptable
levels. As at 31 December 2023, the credit rating of BNP was A2 as rated by Moody’s (31 December 2022: Aa3) and A+ by Standard
& Poor’s (31 December 2022: A+) and the credit rating of US Bank was A2 (31 December 2022: A1) as rated by Moody’s and A+ (31
December 2022: AA-) by Standard & Poor’s.
Administrator
Administration and Company Secretarial services are provided to the Company by Sanne Fund Services (Guernsey) Limited (the
“Administrator”). The Administrator also provides these services to Master Fund II, Master Fund III, Wollemi, Cycad and the General
Partner to these funds. Other services which the Administrator provides the Company include assisting with the AIFMD, Common
Reporting Standard and FATCA reporting. A summary of the terms, including fees, is set out in note 8 of the Financial Statements.
21 .
Innovation at
Investec Bank (Channel
Fionnuala Carvill (Chair of the Risk Committee) is a Non-
Executive Director of
Islands)
Limited, Princess Private Equity Holding Limited and The
Chartered Institute for Securities & Investment Future
Foundation. Previous executive positions held include
Managing Director of Kleinwort Benson (Channel Islands)
Investment Management Limited, Director of Kleinwort
Benson (Channel Islands) Limited, Commission Secretary
and Head of
the Guernsey Financial
Services Commission, and Director of Rothschild Bank
(CI) Limited. She is a former board member of The
Chartered Institute for Securities & Investment, a
Liveryman of
International
the Worshipful Company of
Bankers, and was granted Freedom of the City of London
in 2007. Fionnuala holds a Master’s degree in Corporate
Governance (Distinction), is a Chartered Fellow of The
Chartered Institute for Securities & Investment; a Fellow
of the London Institute of Banking & Finance (Chartered
Institute of Bankers); a member of
the Institute of
Directors; a Fellow of The Chartered Governance Institute
and a Chartered Governance Professional. In addition,
she sits on the board of several charities, holding roles
from fundraising and capacity building to governance and
impact assessment. Fionnuala is a Guernsey resident.
GOVERNANCE
Board of Directors
The Directors of
executive and independent, are listed as follows:
the Company, all of whom are non-
Richard Burwood (Chairman of the Board and Chairman of
the Management Engagement Committee appointed 27
September 2023). Mr Burwood is a resident of Guernsey
with over 30 years’ experience in banking and investment
management. During 18 years with Citibank London, Mr
Burwood spent 11 years as a fixed income portfolio manager
spanning both banks/finance investments and Asset Backed
Securities. Mr Burwood moved to Guernsey in 2010, initially
working as a portfolio manager for EFG Financial Products,
managing the treasury department’s ALCO Fixed Income
portfolio. From 2011 to 2013, Mr Burwood worked as the
Business and Investment Manager for Man Investments,
Guernsey.
In 2013 Mr Burwood joined the board of
TwentyFour Income Fund Ltd., a company specialising in
asset-backed securities, and in 2014 he joined the board of
RoundShield Fund, a Guernsey private equity fund, focused
on European small to mid-cap opportunities. In August 2015,
he became a Board Member of SME Credit Realisation
Fund Limited, which provides investors access to a
diversified pool of SME loans originated through Funding
Circle’s marketplaces in the UK, US and Europe. Mr
Burwood also serves on the boards of Habrok, a hedge fund
specialising in Indian equities, and EFG International
Finance, a structured note issuance company based in
Guernsey. Richard is a Guernsey resident.
various
Jonathan (Jon) Bridel (Chairman of the Audit Committee
and, with effect from 9 December 2022, Chairman of the
Nomination and Remuneration Committee) is currently a
non-executive chairman or director of
listed
investment funds. He is currently a director of DP Aircraft 1
Limited. He was until 2011 Managing Director of Royal Bank
of Canada’s investment businesses in Guernsey and Jersey.
This role had a strong focus on corporate governance,
oversight,
regulatory and technical matters and risk
management. After qualifying as a Chartered Accountant in
1987, Jon worked with Price Waterhouse Corporate Finance
in London and subsequently served in a number of senior
management positions in Australia and Guernsey in
corporate and offshore banking and specialised in credit. He
was also chief financial officer of two private multi-national
businesses, one of which raised private equity. He holds
qualifications from the Institute of Chartered Accountants in
England and Wales where he is a Fellow, the Chartered
Institute of Marketing and the Australian Institute of
Company Directors. He graduated with an MBA from
Durham University in 1988. Jon is a chartered marketer and
a member of
the Chartered Institute of Marketing, a
chartered director and fellow of the Institute of Directors and
is a chartered fellow of the Chartered Institute for Securities
and Investment. Jon is a Guernsey resident.
22 .
GOVERNANCE
Disclosure of Directorships in Public Companies Listed
on Recognised Stock Exchanges
The following summarises the Directors’ directorships in other public companies:
Company Name
Stock Exchange
Richard Burwood (Appointed 27 September 2023)
None
Jon Bridel
DP Aircraft 1 Limited
London Stock Exchange – Main Market (Specialist Fund
Segment)
Fionnuala Carvill
Princess Private Equity Holding Limited
London Stock Exchange – Main Market
23 .
GOVERNANCE
Directors' Report
The Directors of the Company are pleased to submit their Annual Report and the Audited Financial Statements (the “Financial
Statements”) for the year ended 31 December 2023. In the opinion of the Directors, the Annual Report and Audited Financial
Statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Company
The Company was incorporated and registered in Guernsey on 7 March 2014 under the Companies (Guernsey) Law, 2008. The
Company’s registration number is 58123 and it is regulated by the Guernsey Financial Services Commission (“GFSC”) as a
registered closed-ended collective investment scheme. The Company’s ordinary shares were listed on the Specialist Fund Segment
(“SFS”) of the London Stock Exchange (“LSE”) on 12 June 2014.
Results and Dividends
The results for the year are shown in the Statement of Comprehensive Income on page 46.
The Board declared dividends of US$35,667,058 during 2023 (2022: US$44,301,785) followed by an additional dividend declaration
of US$8,651,028 declared on 22 February 2024 in relation to the year ended 31 December 2023 (dividends declared in relation to
the year ended 31 December 2022: US$7,952,233). Further details of dividends declared or paid are detailed in note 4.
The Board paid or declared dividends to shareholders representing an amount in aggregate at least equal to the gross income from
investments, which are received from the Master Fund II and the Master Fund III in the relevant financial period attributable to the
Company’s investment in the Master Fund II and the Master Fund III, and Qualifying Short Term Investments less expenses of the
Company.
Independent Auditor
KPMG Channel Islands Limited were appointed on 12 May 2014 and continued to serve as Auditor during the financial year. A
resolution to re-appoint KPMG Channel Islands Limited as Auditor will be put to the forthcoming Annual General Meeting (“AGM”).
Directors and Directors’ Interests
The Directors, all of whom are independent and non-executive, are listed on page 22.
None of the Directors has a service contract with the Company and no such contracts are proposed. Each independent non-
executive Director is entitled to a basic fee of £45,000 (31 December 2022: £45,000) each per annum. The Nomination and
Remuneration committee recommended an increase of £3,000 in the fee of the Audit Chair and was approved by the board in
January 2024.
The Directors had the following interests in the Company at 31 December 2023 and 31 December 2022, held either directly or
beneficially:
Name
31 December 2023
31 December 2022
No. of 2021
Shares
Percentage
No. of 2021
Shares
Percentage
Richard Burwood (Chairman, appointed 27 September 2023)
Jon Bridel ¹
Fionnuala Carvill
Claudio Albanese (Former Chairman, resigned 31 December 2023)
-
40,000
-
9,697
-
0.01%
-
0.00%
N/A
40,000
-
9,697
N/A
0.01%
-
0.00%
1. All shares held by a person closely associated to Jon Bridel.
24 .
GOVERNANCE
Directors' Report
Substantial Shareholdings
As at 31 March 2024, being the date of the latest shareholder analysis prior to the publication of these Financial Statements, the
following 2021 Shareholders had holdings in excess of 5% of the issued 2021 Share Capital:
Name
No. of 2021 Shares
Percentage of 2021 Shares
Vidacos Nominees account #25
Nortrust Nominees account #1
CGWL Nominees account #1
71,972,811
33,831,145
19,682,106
18.84%
8.86%
5.15%
There were no significant shareholder changes in the period from 31 March 2024 and the date of signing this report.
Related Parties
Details of transactions with related parties are disclosed in note 8 to these Financial Statements.
Regulatory Requirements
Since being admitted to the SFS on 12 June 2014, the Company has complied with the Prospectus Rules, the Disclosure Guidance
and Transparency Rules and the Market Abuse Directive (as implemented in the UK through Financial Services and Markets
Authority).
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (“FATCA”) became effective on 1 January 2013. The legislation is aimed at determining
the ownership of US assets in foreign accounts and improving US tax compliance with respect to those assets. On 13 December
2013, the States of Guernsey entered into an intergovernmental agreement (“IGA”) with US Treasury, in order to facilitate the
requirements under FATCA. The Company registered with the Internal Revenue Service (“IRS”) on 21 November 2014 as a Foreign
Financial Institution (“FFI”).
Common Reporting Standard
The Common Reporting Standard (“CRS”), formerly the Standard for Automatic Exchange of Financial Account Information, became
effective on 1 January 2016. CRS is an information standard for the automatic exchange of
information developed by the
Organisation for Economic Co-operation and Development (“OECD”). CRS is a measure to counter tax evasion and it builds upon
other information sharing legislation, such as FATCA, the UK-Guernsey IGA for the Automatic Exchange of Information and the
European Union Savings Directive, and has superseded the UK-Guernsey Intergovernmental Agreement for the Automatic Exchange
of Information with effect from 1 January 2016. Reporting under CRS in Guernsey is completed on an annual basis.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Company is categorised as a non-EU Alternative Investment Fund (as defined in the AIFMD) (“AIF”) and the Board of the
Company is a non-EU Alternative Investment Fund Manager (“AIFM”) (as defined in the AIFMD) for the purposes of the AIFMD and
as such neither it nor the Investment Adviser will be required to seek authorisation under the AIFMD. However, following national
transposition of the AIFMD in a given EU member state, the marketing of ordinary shares in AIFs (as defined in the AIFMD) that are
established outside the EU (such as the Company) to investors in that EU member state will be prohibited unless certain conditions
are met. Certain of these conditions are outside the Company’s control as they are dependent on the regulators of the relevant third
country and the relevant EU member state entering into regulatory co-operation agreements with one another.
The Directors have appointed the Risk Committee to manage the relevant disclosures to be made to investors and the necessary
regulators. On 18 February 2015, the FCA confirmed that the Company was eligible to be marketed via the FCA’s National Private
Placement Regime and the Company complied with Article 22 and 23 of the AIFMD for the year ended 31 December 2023. In
January 2017, the Company was authorised to market in Sweden, Finland and Luxembourg. As the Board of the Company is the
AIFM, the details of the Company’s remuneration policy for the Directors is outlined on page 36 and accords with the principles
established by AIFMD.
25 .
GOVERNANCE
Directors' Report
Non-Mainstream Pooled Investments
The Company’s ordinary shares are considered as “excluded securities” for the purposes of the FCA Rules regarding the definition
and promotion of non-mainstream pooled investments (“NMPI”) because the returns to investors holding the Company’s ordinary
shares are, and are expected to continue to be, predominantly based on the returns from ordinary shares and debentures held
indirectly by the Company. The Board therefore believes that independent financial advisers can recommend the Company’s ordinary
shares to retail investors, although financial advisers should seek their own advice on this issue.
Reporting Fund Regime
The Company was accepted into the UK Reporting Fund regime with effect from 7 March 2014. Under this regime, which effectively
replaced the UK Distributor Status regime, an offshore investment fund operates by reference to whether it opts into the reporting
regime (“Reporting Funds”) or not (“Non-reporting Funds”).
A UK investor who disposes of an interest in a Reporting Fund should be subject to tax on any gains realised as capital gains rather
than income. Such investors will also be subject to income tax on the distributions received from the offshore fund and their share of
the excess of the offshore fund’s reported income over the distributions made (i.e. they will be subject to income tax on their share of
the offshore fund’s income regardless of whether this is distributed or not). Shareholders should seek their own professional advice
as to the tax consequences of the UK Reporting Fund regime.
Anti-bribery and Corruption
The Board acknowledge that the Company’s international operations may give rise to possible claims of bribery and corruption. In
consideration of The Bribery Act 2010, enacted in the UK, at the date of this report the Board had conducted an assessment of the
perceived risks to the Company arising from bribery and corruption to identify aspects of business which may be improved to mitigate
such risks. The Board has adopted a zero tolerance policy towards bribery and has reiterated its commitment to carry out business
fairly, honestly and openly.
Criminal Finances Act
The Board of the Company has a zero tolerance commitment to preventing persons associated with it from engaging in criminal
facilitation of tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions in
place to prevent the criminal facilitation of tax evasion by their own associated persons and will not work with service providers who
do not demonstrate the same zero tolerance commitment to preventing persons associated with it from engaging in criminal
facilitation of tax evasion.
UK Modern Slavery Act
The Board acknowledges the requirement to provide information about human rights in accordance with the UK Modern Slavery Act.
The Board conducts the business of the Company ethically and with integrity, and has a zero tolerance policy towards modern
slavery in all its forms. As the Company has no employees, all its Directors are non-executive and all its functions are outsourced,
there are no further disclosures to be made in respect of employees and human rights.
Employee Engagement & Business Relationships
The Company conducts its core activities through third-party service providers and does not have any employees. The Board
recognises the benefits of encouraging strong business relationships with its key service providers and seeks to ensure each is
committed to the performance of their respective duties to a high standard and, where practicable, that each provider is motivated to
adding value within their sphere of activity. Details on the Board’s approach to service provider engagement and performance review
are contained in the Management Engagement Committee Report.
Whistleblowing
The Board has considered the AIC Code recommendations in respect of arrangements by which staff of the Investment Adviser,
Custodian or Administrator may, in confidence, raise concerns within their respective organisations about possible improprieties in
matters of financial reporting or other matters. It has concluded that adequate arrangements are in place for the proportionate and
independent
for appropriate follow-up action to be taken within their
organisation.
investigation of such matters and, where necessary,
26 .
GOVERNANCE
Directors' Report
Environmental and Social Policy
Over the course of the last decade, renewable energy has grown materially as governments and investors started to realise the need
for sustainable energy sources. In 2023, countries worldwide continued to pursue decarbonisation plans and the renewable growth
trend is expected to continue going forward as more countries join the Paris Climate Accord which aims to achieve the goal of net-
zero carbon emissions by 2050.
The Company is a closed-ended investment company which has no employees or offices and therefore its own direct environmental
impact is minimal. The Company operates by outsourcing significant parts of its operations to reputable professional companies, who
are required to comply with all relevant laws and regulations and take account of social, environmental, ethical and human rights
factors, where appropriate.
The Board notes that the underlying entities which the CLOs are invested in will have a social and environmental impact over which it
has limited control. Europe, however, has seen the emergence of CLOs subject to Environmental, Social and Corporate Governance
(“ESG”) investment criteria. The inclusion of ESG language in CLOs has become more prevalent and is likely to develop from sector-
based negative screening towards ESG scoring. The Master Funds have been at the forefront of these developments and, as of the
end of December 2023, 76.8% of all CLO equity investments in the Master Funds’ portfolio included ESG investment restrictions.
These restrictions exclude any underlying collateral debt obligation whose primary business activity is, amongst others, oil, gas or
thermal coal extraction, upstream palm oil production, trade in weapons or firearms, hazardous chemicals, pesticides and wastes,
ozone-depleting substances, endangered or protected wildlife or wildlife products, tobacco and predatory lending.
The Company has no direct greenhouse gas emissions to report from its operations, nor does it have responsibility for any other
emissions-producing sources, including those within its underlying CLOs portfolio.
In carrying out its investment activities and in relationship with suppliers, the Company aims to conduct itself responsibly, ethically
and fairly.
In addition, the Investment Adviser has been a signatory to the UN Principles for Responsible Investment (“UN PRI”) since July 2016
and is committed to applying the UN PRI to all stages of its investment criteria and to increasing awareness in credit markets.
EU Sustainable Finance Disclosure Regulation - Article 6 - Sustainability Risk
A sustainability risk is an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential
material negative impact on the value of an investment. The Investment Adviser integrates sustainability risks into its investment
decisions in two ways. Firstly, its analysis of the managers of the CLOs in which the Company/Master Funds invest considers any
sustainability risks at the manager level that could impact either the effective management of the CLO or the secondary market value
of the CLO securities. Secondly, the Investment Adviser considers sustainability risks at the level of the borrowers of the loans in the
CLOs’ portfolios. The realisation of sustainability risks at these borrowers could increase the probability of borrowers defaulting on
loans held by the CLOs and a consequent erosion of the CLOs’ collateral pools.
The Investment Adviser has determined that sustainability risks, while relevant to the Company’s and Master Funds’ portfolio,
present a very limited risk to the value of its investments. The manager-related sustainability risks are mitigated by the tight controls
enforced on CLO managers by the CLO indenture and trustee, the manager replacement provisions in the indenture and the fact that
CLO investors are ultimately protected by their security over the CLO collateral. The sustainability risks related to the borrowers of
loans in the CLO portfolios are mitigated by the diversification of the CLO portfolios and by the analysis undertaken on the loan
borrowers by equity investors, lenders and rating agencies.
27 .
GOVERNANCE Directors' ReportEnvironmental and Social Policy (continued)EU Sustainable Finance Disclosure Regulation - Article 6 - Sustainability Risk (continued)Jon Bridel18 April 2024“Sustainabilityfactors”areenvironmental,socialandemployeematters,respectforhumanrights,anti-corruptionandanti-briberymatters.DuetoacurrentlackofdetailedrelevantinformationavailablefromtheborrowersofloansinCLOportfolios,theInvestmentAdviserdoesnotconsidertheadverseimpactsofinvestmentdecisionsonsustainabilityfactors.Theinvestmentsunderlyingthisfinancial product do not take into account the EU criteria for environmentally sustainable economic activities.By order of the BoardDirector28 . GOVERNANCE
Corporate Governance
Compliance
The Board has taken note of the Code of Corporate Governance issued by the Guernsey Financial Services Commission (“Guernsey
Code”). The Guernsey Code provides a governance framework for GFSC licensed entities, authorised and registered collective
investment schemes. Companies reporting in compliance with the UK Corporate Governance Code (the “UK Code”) or the Association
of Investment Companies Code of Corporate Governance (“AIC Code”), which was last published in February 2019, are deemed to
satisfy the provisions of the Guernsey Code. The UK Code is available on the Financial Reporting Council website, www.frc.org.uk.
As a Guernsey incorporated company and under the SFS Rules for companies, it is not a requirement for the Company to comply with
the UK Code. However, the Directors place a high degree of importance on ensuring that high standards of corporate governance are
maintained and have considered the principles and recommendations of the AIC Code. The AIC Code addresses all the principles and
provisions set out in the UK Code as well as setting out additional provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and provisions of the AIC Code will provide more relevant information to
shareholders. The AIC code is available on the AIC website, www.theaic.co.uk.
For the year ended 31 December 2023, the Company complied substantially with the relevant provisions of the AIC Code and it is the
intention of the Board that the Company will comply with those provisions throughout the year ending 31 December 2024, with the
exception of the provisions listed below:
•
The appointment of a Senior Independent Director: Given the size and composition of the Board it is not felt necessary to separate the
roles of Chairman and Senior Independent Director. The Board considers that all the independent Directors have different qualities
and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed.
•
•
Internal audit function: The Board has reviewed the need for an internal audit function and due to the size of the Company and the
delegation of day-to-day operations to regulated service providers, an internal audit function is not considered necessary. The
Directors will continue to monitor the systems of internal controls in place in order to provide assurance that they operate as intended.
The appointment of Executive Directors: Due to the broad range of experience of the Board and given the nature of the Company’s
activity and that the majority of Directors are deemed to be independent under the AIC Code, it is not considered necessary to appoint
executive Directors.
In January 2024, the Financial Reporting Council published the 2024 UK Corporate Governance Code (“the 2024 Code”) that will apply
to financial years beginning on or after 1 January 2025. The 2024 Code is applicable to companies with a premium listing on the London
Stock Exchange, regardless of where they are incorporated. To comply with elements of the UK Listing Rules these companies must
apply the Principles of the 2024 Code and comply with or explain against the Provisions.
As the Board considers the principles and recommendations of the AIC Code, it will carefully need to consider the implications of the
above changes on the AIC Code, if any.
Composition and Independence of Directors
The Board are mindful of the length of service of the Directors, some of whom have been in place since the inception of the Company in
2014. The Company devised a succession plan where Professor Claudio Albanese retired in December 2023 and Jon Bridel is expected
to retire in December 2024 with plans underway to appoint a new director. Within the recruitment process, further consideration will be
given to industry best practice and recognised guidance including, but not limited to, the requirements on listed companies arising from
the Hampton Alexander review and the Parker Review. The succession planning will continue to be kept under review to ensure an
orderly transfer of knowledge and responsibilities as the Directors continue to look to refresh the Board with these new appointments in
the coming few years.
On 27 September 2023, the Board were pleased to announce the appointment of Richard Burwood as a non-executive Director of the
Company and Chairman of the Board. In order to align with the Board's succession plan as announced in the Company's Annual Report
of 2022, and to ensure an orderly transfer of responsibilities, Mr Burwood was appointed as Chairman of the Board ahead of Dr Claudio
Albanese’s retirement on 31 December 2023, during which time Dr Albanese remained on the board as a non-executive Director.
29 .
GOVERNANCE
Corporate Governance
Composition and Independence of Directors (continued)
Mr Jon Bridel informed the board that he will be available for re-election at the next Annual General Meeting (“AGM”) and will be serving
on the board until 31 December 2024 when he is expected to retire. This will provide sufficient time to ensure an orderly handover to the
new Audit Committee Chairman and the new board member. Mr Bridel has served on the board since its inception in 2014 and has
provided effective independent judgment on issues of strategy, performance, resources and conduct. In the opinion of the Board, Mr
Bridel remains independent and focused on ensuring an effective succession plan working with his successor.
Appointment process:
The Directors appointment process involves identifying gaps and needs in the Board’s composition and then reviewing the skill set of
potential candidates with a few to making an appointment that fills the identified gaps and needs. Following this process, the board
formally appointed Richard Burwood in 2023. The board engaged OSA recruitment company, an independent search consultancy with
no connection to the Company or its Directors to assist with the above appointment.
As at 31 December 2023, the Board of Directors comprised three non-executive and independent Directors as set out below. The
Company has no executive Directors or any employees. The biographies of the Board are disclosed on page 22.
Richard Burwood is the Chairman of the Board and the Management Engagement Committee.
Jon Bridel is the Chairman of the Audit Committee and the Nomination and Remuneration Committee.
Fionnuala Carvill is the Chair of the Risk Committee.
In considering the independence of the Chairman, the Board has taken note of the provisions of the AIC Code relating to independence
and has determined that Richard Burwood is an Independent Director. As Chairman, Mr Burwood is responsible for the leadership of the
Board and ensuring effectiveness in all aspects of its role.
Under the terms of their appointment, all non-executive Directors are subject to re-election annually at the AGM. At the Annual General
Meeting of the Company, due to take place on 5 June 2024, shareholders will be ask to elect and re-elect all the Directors of the
Company.
At the Company’s last Annual General Meeting, which was held on 8 June 2023, a substantial number of votes were cast against certain
resolutions. These resolutions related to the election and re-election of the Directors and the shareholder authority for the disapplication
of pre-emption rights in respect of a total of up to approximately 20 percent. of the existing 2021 Shares in issue.
The Directors consulted with the relevant shareholder in order to understand their reasons for voting in this way. Directly and via its
Investment Adviser, the Board have gained an understanding of the reasons that impacted the exercising of these votes, and they are
committed to ongoing engagement with all relevant shareholders in respect of these matters, and to conduct a broader shareholder
engagement during 2024.
Although no formal training is given to Directors by the Company, the Directors are kept up to date on various matters such as
Corporate Governance issues through bulletins and training materials provided from time to time by the Company Secretary, the AIC
and other professional firms bodies.
The Board receives quarterly reports from the Company's advisers and meets at least quarterly to review the overall business of the
Company and to consider matters specifically reserved for its disposal. At
these meetings the Board monitors the investment
performance of the Company. The Directors also review the Company’s activities every quarter to ensure that it adheres to the
Company’s investment policy. Additional ad hoc reports are received as required and Directors have access at all times to the advice
and services of the Company Secretary, who is responsible for ensuring that the Board procedures are followed and that applicable
rules and regulations are complied with.
The Board monitors the level of the share price premium or discount to determine what action is desirable (if any). On 20 September
2022 the Board announced that it had resolved to enhance the Company’s aggregate distributions to holders of the 2021 Shares, with
the objective of being meaningfully accretive to 2021 Shareholders and positively influencing the discount to NAV and trading liquidity of
the 2021 Shares.
The Board and relevant personnel of the Investment Adviser acknowledge and adhere to the Market Abuse Regulation which was
implemented on 3 July 2016.
30 .
GOVERNANCE
Corporate Governance
Board Diversity
At 31 December 2023, the Board of Directors of the Company comprises two male directors and one female director.
The Board is committed to diversity and is supportive of increased gender and ethnic diversity. As referred to above, during 2022,
Fionnuala Carvill was appointed as the Company’s first female Director. Going forward the Board will ensure there is an equal balance of
gender in candidates for final interviews and, as mentioned above, the Company will also consider industry best practice and recognised
guidance including the requirements on listed companies arising from the Hampton Alexander review and the Parker Review.
The Nomination and Remuneration Committee regularly reviews the structure, size and composition of the Board, taking into account
the challenges and opportunities facing the Company. The Board is also committed to appointing the most appropriate available
candidates taking into account the skills and attributes of both existing members and potential new recruits and thereby the balance of
skills, experience and approach of the Board as a whole which will lead to optimal Board effectiveness. In considering future candidates,
appointments will be based on merit as a primary consideration, with the aim of bringing an appropriate range of the specific skills,
experience, independence, and knowledge needed to ensure a rounded Board and the diversity benefits each candidate can bring to the
overall Board composition.
As at 31 December 2023, the Company did not meet the targets specified in the Listing Rules 9.8.6R(9)(a)(i) with the Board comprising
40 percent women as currently only one woman serves on the board. All board appointments are based on merit and objective criteria,
taking into account the benefits of diversity. It is however the Board's intention to meet the target specified in Listing Rule 9.8.6R(9)(a)(i)
as the Board is refreshed over time and is also considered in the succession plan.
The Company is externally managed and does not have executive functions, specifically it does not have a CEO or CFO. The Company
considers the role of Chairs of the permanent sub-committees, being Audit Committee, Risk Committee and Management Engagement
Committee, to be senior positions and of these senior roles one is performed by a woman.
Directors’ Performance Evaluation
The Board has established an informal system for the evaluation of its own performance and that of the Company’s individual Directors.
It considers this to be appropriate having regard to the non-executive role of the Directors and the significant outsourcing of services by
the Company to external providers.
The Directors undertake, on an annual basis by means of an internal questionnaire, an assessment of the effectiveness of the Board,
particularly in relation to its oversight and monitoring of the performance of the Investment Adviser and other key service providers. The
evaluations consider the balance of skills, experience, independence and knowledge of the Company. The Board also evaluates the
effectiveness of each of the Directors. The Company Secretary collates the results of the questionnaires and the consolidated results
are reviewed by the Board as a whole.
In respect of the AGM, which will be held on 5 June 2024, the Board is of the view that each Director seeking re-election should be re-
elected given their extensive knowledge of international financial markets, funds and risk management. This experience is evidenced
within the biographies of the Board as disclosed on page 22. Collectively, the blend of skillsets demonstrates the importance of the
contribution of each Director and why they should each be re-elected at the forthcoming AGM.
The Chairman also has responsibility for assessing the individual Board members’ training and development requirements.
Directors’ Remuneration
With effect from 27 August 2015, it is the responsibility of the Nomination and Remuneration Committee to determine and approve the
Directors’ remuneration, having regard to the level of fees payable to non-executive Directors in the industry generally, the role that
individual Directors fulfil
in respect of Board and Committee responsibilities and the time committed to the Company’s affairs. The
Chairman’s remuneration is decided separately and is approved by the Board as a whole.
No Director has a service contract with the Company and details of the Directors’ remuneration can be found in the Directors’
Remuneration Report on page 36.
Directors’ and Officers’ Liability Insurance
The Company maintains Directors’ and Officers’ liability insurance on behalf of the Directors in relation to the performance of their duties
as Directors.
31 .
GOVERNANCE
Corporate Governance
Relations with Shareholders
The Company reports to shareholders twice a year by way of the Interim Report and Unaudited Condensed Financial Statements and
the Annual Report and Audited Financial Statements. In addition, NAVs are published monthly and the Investment Adviser publishes
monthly reports to shareholders on its website www.fairoaksincome.com.
The Board receives quarterly reports on the shareholder profile of the Company and regular contact with major shareholders is
undertaken by the Company’s corporate brokers and the executives of the Investment Adviser. Any issues raised by major shareholders
are reported to the Board on a regular basis.
The Chairman and individual Directors are willing to meet major shareholders to discuss any particular items of concern regarding the
performance of the Company. Members of the Board, including the Chairman and the Audit Committee Chairman, and the Investment
Adviser are also available to answer any questions which may be raised by any shareholder at the Company’s Annual General Meeting.
Stakeholders and Section 172
Whilst directly applicable to UK domiciled companies, the intention of the AIC Code is that matters set out in section 172 of the
Companies Act, 2006 (“s172 of
the Company’s other key
stakeholders as part of its discussions and decision making process. As an investment company, the Company does not have any
employees and conducts its core activities through third-party service providers. Each provider has an established track record and,
through regulatory oversight and control, are required to have in place suitable policies to ensure they maintain high standards of
business conduct, treat customers fairly, and employ corporate governance best practice.
the Companies Act”) are reported. The Board considers the view of
The Board’s commitment to maintaining the high-standards of corporate governance recommended in the AIC Code, combined with the
directors’ duties incorporated into the Companies (Guernsey) Law, 2008, the constitutive documents, the Disclosure Guidance and
Transparency Rules, and Market Abuse Regulation, ensures that shareholders are provided with frequent and comprehensive
information concerning the Company and its activities.
Whilst the primary duty of the Directors is owed to the Company as a whole, the Board considers as part of its decision making process
the interests of all stakeholders. Particular consideration being given to the continued alignment between the activities of the Company
and those that contribute to delivering the Board’s strategy, which include the Investment Manager and Administrator.
The Board respects and welcomes the views of all stakeholders. Any queries or areas of concern regarding the Company’s operations
can be raised with the Secretary.
Directors’ Meetings and Attendance
The following table shows the attendance at Board and Committee meetings during the year. There were four formal Board meetings,
four Risk Committee meetings and two Nomination & Remuneration Committee meetings. No
three Audit Committee meetings,
Management Engagement Committee meetings were held during the year.
32 .
GOVERNANCE
Corporate Governance
Directors’ Meetings and Attendance (continued)
Name
Number of meetings held
Richard Burwood (Chair of the Board and
Management Engagement Committee)¹
Jon Bridel (Chair of the Audit Committee and the
Nomination & Remuneration Committee)
Fionnuala Carvill (Chair of the Risk Committee)
Professor Claudio Albanese (Former Chair of the
Board and Management Engagement Committee)²
Board
Audit
Committee
Risk
Committee
Management
Engagement
Committee³
Nomination &
Remuneration
Committee
4
2
4
4
4
3
1
3
3
N/A
4
2
4
4
4
1
1
1
1
1
2
1
2
2
2
The Chairman is responsible for ensuring the Directors receive complete information in a timely manner concerning all matters which
require consideration by the Board. Through the Board’s ongoing programme of shareholder engagement and the reports produced by
each key service provider, the Directors are satisfied that sufficient information is provided so as to ensure the matters set out in s172 of
the Companies Act are taken into consideration as part of the Board’s decision-making process.
Board Committees
Audit Committee
During the year ended 31 December 2023, the Audit Committee has comprised of Jon Bridel, Fionnuala Carvill and Richard Burwood,
and meets at least three times a year. Richard Burwood became a member of the Audit Committee during the board meeting held on 8
December 2023. Jon Bridel is Chairman of the Audit Committee. The key objectives of the Audit Committee include a review of the
Financial Statements to ensure they are prepared to a high standard and comply with all relevant legislation and guidelines, where
appropriate, and to maintain an effective relationship with the Auditor. With respect to the Auditor, the Audit Committee’s role will include
the assessment of their independence, review of the Auditor’s engagement letter, remuneration, performance and any non-audit
services provided by the Auditor. For the principal duties and report of the Audit Committee please refer to the Report of the Audit
Committee on page 37.
Risk Committee
The Risk Committee meets at least four times a year. It comprises the entire Board and was chaired by Fionnuala Carvill. The principal
function of the Risk Committee is to identify, assess, monitor and, where possible, oversee the management of risks to which the
Company’s investments are exposed, principally to enable the Company to achieve its target investment objective of a total return of
12% to 14% per annum over the planned life of the Company, with regular reporting to the Board. As the Company is an internally
managed non-EU AIFM for the purposes of AIFMD, the Directors have appointed the Risk Committee to manage the additional risks
faced by the Company as well as the relevant disclosures to be made to investors and the necessary regulators. On 18 February 2015,
the FCA confirmed that the Company was eligible to be marketed via the FCA’s National Private Placement Regime and the Company
complied with Articles 22 and 23 of the AIFMD for the year ended 31 December 2023. In January 2017, the Company was authorised to
market in Sweden, Finland and Luxembourg.
Management Engagement Committee
The Management Engagement Committee (“MEC”) meets at least once a year. MEC met in December 2023 and the meeting was then
adjourned to January 2024. It comprises the entire Board and is chaired by Richard Burwood. The MEC is responsible for the regular
review of the terms of the Investment Advisory Agreement and the performance of the Administrator and the Investment Adviser and
also the Company’s other service providers. For the principal duties of the MEC, please refer to the Management Engagement
Committee Report on page 40.
1. Appointed to the Board and Chairman on 27 September 2023.
2. Resigned from the Board on 31 December 2023
3. ‘Management Engagement Committee ("MEC") met in December 2023 and was then adjourned to January 2024
33 .
GOVERNANCE
Corporate Governance
Nomination and Remuneration Committee
The Nomination and Remuneration Committee meets at least once a year. It comprises the entire Board and was chaired by Jon Bridel.
The Nomination and Remuneration Committee is responsible for reviewing the structure, size and composition of the Board, to consider
the succession planning for directors, reviewing the leadership needs of the organisation, identifying candidates for appointment to the
Board, agreeing a framework for Director remuneration, ensuring management of the Company are appropriately incentivised to
enhance performance and reviewing the appropriateness of the remuneration policy on an ongoing basis. In order to identify appropriate
candidates for appointment to the Board, the Nomination and Remuneration Committee will appoint an independent consultant for the
purposes of identifying suitable candidates for the purposes of succession planning.
Internal Control Review and Risk Management System
The Board of Directors is responsible for putting in place a system of internal controls relevant to the Company and for reviewing the
effectiveness of those systems. The review of internal controls is an ongoing process for identifying and evaluating the risks faced by the
Company, and which are designed to manage risks rather than eliminate the risk of failure to achieve the Company’s objectives.
It is the responsibility of the Board to undertake risk assessment and review of the internal controls in the context of the Company’s
objectives that cover business strategy, operational, compliance and financial risks facing the Company. These internal controls are
implemented by the Company’s three main service providers: the Investment Adviser, the Administrator and the Custodian. The Board
receives periodic updates from these main service providers at the quarterly Board meetings of the Company. The Board is satisfied that
each service provider has effective controls in place to control the risks associated with the services that they are contracted to provide
to the Company and are therefore satisfied with the internal controls of the Company.
The Board of Directors considers the arrangements for the provision of Investment Advisory, Administration and Custody services to the
Company on an ongoing basis and a formal review is conducted annually. As part of this review the Board considered the quality of the
personnel assigned to handle the Company’s affairs, the investment process and the results achieved to date.
34 .
GOVERNANCE Statement of Directors' ResponsibilitiesTheDirectorsareresponsibleforpreparingtheDirectors’ReportandFinancialStatementsinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”)andtheCompanies(Guernsey)Law,2008whichgiveatrueandfairviewofthestateofaffairsoftheCompanyanditsprofitorlossforthatperiod.InpreparingtheFinancialStatementstheDirectorsarerequiredto:•selectsuitableaccountingpoliciesandapplythemconsistently;•makejudgementsandestimatesthatarereasonableandprudent;•statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedintheFinancialStatements;•assesstheCompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcern;and•usethegoingconcernbasisofaccountingunlesstheyeitherintendtoliquidatetheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.TheDirectorsarealsoresponsibleforthekeepingofproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandtoenablethemtoensurethattheFinancialStatementscomplywiththeCompanies(Guernsey)Law,2008andtheListingRulesoftheSFSoftheLondonStockExchange.Theyarealsoresponsibleforthesystemofinternalcontrols,safeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.TheDirectorsconfirmthattheyhavecompliedwiththeserequirementsinpreparingtheFinancialStatements.TheDirectorsarealsoresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedontheCompany’swebsite.LegislationintheUnitedKingdomandGuernseygoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.SofarastheDirectorsareaware,thereisnorelevantauditinformationofwhichtheCompany’sauditorisunaware,havingtakenallthestepstheDirectorsoughttohavetakentomakethemselvesawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorisawareofthatinformation.ResponsibilityStatementEachoftheDirectors,whoarelistedonpage22,confirmstothebestoftheirknowledgeandbelief:•theFinancialStatements,preparedinaccordancewithIFRSasissuedbytheIASB,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitoftheCompany,asrequiredbyDTR4.1.12R;•theManagementReport(comprisingtheChairman’sStatement,theInvestmentAdviser’sReport,theDirectors’Report,theStrategicReportandotherCommitteeReports)includesafairreviewofthedevelopmentandperformanceofthebusinessduringtheyear,andthepositionoftheCompanyattheendoftheyear,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheCompanyfaces,asrequiredbyDTR4.1.8RandDTR4.1.9R;and•theAnnualReport,comprisingtheFinancialStatements,StrategicReviewandGovernancereport,takenasawhole,isfair,balancedandunderstandable.SignedonbehalfoftheBoardby:JonBridelDirector18April202435 . GOVERNANCE
Directors' Remuneration Report
The Company’s policy in regard to Directors’ remuneration is to ensure that remuneration is competitive, aligned with shareholder
interests, relatively simple and transparent, and compatible with the aim of attracting, recruiting and retaining suitably qualified and
experienced directors.
No element of the Directors’ remuneration is performance related, nor does any Director have any entitlement to pensions, share options
or any long term incentive plans from the Company.
The Company’s Articles limit the fees payable to Directors in aggregate to US$400,000 per annum.
The Directors have received the following remuneration during the year in the form of Directors’ fees:
Richard Burwood (Chair of the Board and
Management Engagement Committee)¹
Jon Bridel (Chair of the Audit Committee and the
Nomination & Remuneration Committee)
Fionnuala Carvill (Chair of the Risk Committee)
Nigel Ward (former Chair of the Risk Committee and
the Nomination & Remuneration Committee)³
Professor Claudio Albanese (Former Chair of the
Board and Management Engagement Committee)⁴
Total
Per Annum
£
45,000
45,000
45,000
45,000
45,000
For the year from
1 January 2023
to 31 December 2023
Actual
For the year from
1 January 2022
to 31 December 2022
Actual
£
11,835
45,000
45,000
N/A
45,052
£
N/A
45,000
24,781
42,164
45,000
146,887
156,945
For the year ended 31 December 2023, each Director is entitled to a fee of £45,000 per annum (31 December 2022: £45,000 per
annum). The remuneration policy set out above is the one applied for the years ended 31 December 2023 and 31 December 2022.
Directors’ and Officers’ liability insurance cover is maintained by the Company on behalf of the Directors.
respective appointments. Each Director’s
The Directors were appointed as non-executive Directors by letters issued on their
appointment letter provides that, upon the termination of their appointment, they must resign in writing. The Directors’ appointments can
be terminated in accordance with the Articles and without compensation. The notice period for the removal of Directors is three months
as specified in the Director’s appointment letter. The Articles provide that the office of director shall be terminated by, among other
things: (a) written resignation; (b) unauthorised absences from Board meetings for six months or more; (c) unanimous written request of
the other Directors; or (d) an ordinary resolution of the Company.
The amounts payable to Directors as at 31 December 2023 and 31 December 2022, shown in note 8 to the Financial Statements, related
to services as non-executive Directors.
No Director has a service contract with the Company, nor are any such contracts proposed.
Jon Bridel
Director
18 April 2024
1. Appointed to the Board and as Chair of the board and Management and Engagement Committee on 27 September 2023.
2. Appointed to the Board and as Chair of the Risk Committee on 14 June 2022.
3. Resigned from the Board on 8 December 2022.
4. Resigned from the Board on 31 December 2023.
36 .
GOVERNANCE
Report of the Audit Committee
The Company has established an Audit Committee with formally delegated duties and responsibilities within written terms of
reference (which are available from the Company’s website).
Chairman and Membership
The Audit Committee is chaired by Jon Bridel, a Chartered Accountant. He and the other members who served during the year
Fionnuala Carvill and Richard Burwood, are all independent Directors. Only independent Directors serve on the Audit Committee and
members of the Audit Committee have no links with the Company’s Auditor and are independent of the Investment Adviser. The
membership of the Audit Committee and its terms of reference are kept under review. The relevant qualifications and experience of
each member of the Audit Committee is detailed on page 22 of these Financial Statements. The Audit Committee’s intention is to
meet at least three times a year in any full year and it meets the Auditor during those meetings.
Duties
The Audit Committee’s main role and responsibilities are to provide advice to the Board on whether the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and understandable and alongside the Interim Report and Unaudited
Condensed Financial Statements provide the information necessary for shareholders to assess the Company’s performance,
business model and strategy. The Audit Committee gives full consideration and recommendation to the Board for the approval of the
contents of the Interim and Annual Financial Statements of the Company, which includes reviewing the Auditor’s report.
The other principal duties include to consider the appointment of the Auditor, to discuss and agree with the Auditor the nature and
scope of the audit, to keep under review the scope, results and effectiveness of the audit and the independence and objectivity of the
Auditor, to review the Auditor’s letter of engagement, the Auditor’s planning report for the financial year and management letter and
to analyse the key procedures adopted by the Company’s service providers.
The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of the Company’s internal
control and risk management systems as they relate to the financial reporting process. The Audit Committee also focuses particularly
on compliance with legal requirements, accounting standards and the relevant Listing Rules and ensuring that an effective system of
internal financial and non-financial controls is maintained.
The Audit Committee also reviews, considers and, if thought appropriate, recommends for the purposes of the Company’s Financial
Statements valuations prepared by the Investment Adviser. These valuations are the most critical element in the Company’s
Financial Statements and the Audit Committee questions them carefully.
Financial Reporting and Significant Risk
The Audit Committee has an active involvement and oversight
in the preparation of both the Interim Report and Unaudited
Condensed Financial Statements and the Annual Report and Audited Financial Statements and in doing so is responsible for the
identification and monitoring of the principal risks associated with the preparation of the Financial Statements. After discussion with
the Investment Adviser and KPMG Channel Islands Limited (“KPMG”), the Audit Committee determined that the key risk of material
misstatement of the Company’s Financial Statements related to the valuation of investments.
•
Valuation of Master Fund III – The Company’s investment in the Master Fund III had a fair value of US$192,468,189 as at 31
December 2023 and represents substantially all the net assets of the Company and as such is the biggest factor in relation to the
accuracy of the Financial Statements. This investment is valued in accordance with the Accounting Policies set out in note 2 to the
Financial Statements. The Financial Statements of the Master Fund III for the year ended 31 December 2023 were audited by
KPMG who issued an unmodified audit opinion dated 18 April 2024. The Audit Committee has reviewed the Audited Financial
Statements of the Master Fund III and the accounting policies and determined the Company’s fair value of the investment in the
Master Fund III as at 31 December 2023 to be reasonable.
37 .
GOVERNANCE
Report of the Audit Committee
Financial Reporting and Significant Risk (continued)
•
Valuation of Master Fund II – The Company’s direct investment in the Master Fund II had a fair value of US$27,998,151 as at 31
December 2023 and represents a substantial portion of the net assets of the Company. This investment is valued in accordance
with the Accounting Policies set out in note 2 to the Financial Statements. The Financial Statements of the Master Fund II for the
year ended 31 December 2023 were audited by KPMG who issued an unmodified audit opinion dated 18 April 2024. The Audit
Committee has reviewed the Audited Financial Statements of the Master Fund II and the accounting policies and determined the
Company’s fair value of the investment in the Master Fund II as at 31 December 2023 to be reasonable.
Financial Reporting and Audit
The Audit Committee reviews the Company’s accounting policies applied in the preparation of its Annual Financial Statements
together with the relevant critical judgements, estimates and assumptions and, upon taking the appropriate advice from the Auditor,
determined that these were in compliance with IFRS, as issued by the IASB and were reasonable. The Audit Committee reviewed the
materiality levels applied by the Auditor to the Financial Statements as a whole and was satisfied that materiality levels were
appropriate. The Auditor reports to the Audit Committee all material corrected and uncorrected differences. The Auditor explained the
results of their audit and that on the basis of their audit work, there were no uncorrected differences proposed that were material in
the context of the Financial Statements as a whole.
The Audit Committee also reviews the Company’s financial reports as a whole to ensure that such reports appropriately describe the
Company’s activities and to ensure that all statements contained in such reports are consistent with the Company’s financial results
and projections. Accordingly, the Audit Committee was able to advise the Board that the Annual Report and Audited Financial
Statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
External Auditor
The Audit Committee has responsibility for making a recommendation on the appointment, re-appointment and removal of the
Auditor. KPMG was appointed as the first Auditor of the Company in 2014. During the year, the Audit Committee received and
reviewed the audit plan and strategy from KPMG. It is standard practice for the Auditor to meet privately with the Audit Committee
without the Investment Adviser being present at each Audit Committee meeting. The board has undertaken a review of KPMG as
auditors and do not feel it necessary to put the audit out to tender at this stage
To assess the effectiveness of the Auditor, the Audit Committee will review:
•
•
•
•
The Auditor’s fulfilment of the agreed audit plan and variations from it;
The Auditor’s assessment of its objectivity and independence as auditor of the Company;
The Audit Committee Report from the Auditor highlighting the major issues that arose during the course of the audit; and
Feedback from the Investment Adviser and Administrator evaluating the performance of the audit team.
Where non-audit services are to be provided to the Company by the Auditor, full consideration of the financial and other implications
on the independence of the auditor arising from any such engagement will be considered before proceeding. All non-audit services
are pre-approved by the Audit Committee after it is satisfied that relevant safeguards are in place to protect the auditors’ objectivity
and independence.
To fulfil its responsibility regarding the independence of the Auditors, the Audit Committee considered:
•
•
a report from the Auditor describing its arrangements to identify, report and manage any conflicts of interest; and
the extent of non-audit services provided by the Auditor.
During the year ended 31 December 2023, KPMG provided non-audit and audit services as listed on page 39. KPMG confirmed that
the non-audit services provided during the year had not impacted their independence and outlined the reasons for this. These non-
audit services complied with permissible services under the Financial Reporting Council (“FRC”) Revised Ethical Standard 2019. The
Audit Committee was satisfied that these non-audit services had no bearing on the independence of the Auditor in the prior year.
38 .
GOVERNANCE Report of the Audit CommitteeExternal Auditor (continued)For the year ended 31 December 2023For the year ended 31 December 2022US$US$KPMG Channel Islands Limited– Annual Audit of the Company and related entities *308,142 272,625 – Interim review56,686 50,144 Other KPMG International member firms– Agreed upon procedures – Fair Oaks CLOs- 19,139 Internal ControlsJon BridelAudit Committee Chairman* Increase in audit fees are due to inflationary increases and the effect of foreign exchangeInaccordancewiththeguidancepublishedinthe‘TurnbullReport’bytheFRC,theAuditCommitteehasreviewedtheCompany’sinternalcontrolprocedures.TheseinternalcontrolsareimplementedbytheInvestmentAdviserandtheAdministrator.TheAuditCommitteehasperformedreviewsoftheinternalfinancialcontrolsystemsandriskmanagementsystemsduringtheyear.TheAuditCommittee is satisfied with the internal financial control systems of the Company.On behalf of the Audit Committee18 April 2024AstheCompany’sinvestmentobjectiveistoinvestallofitsassetsintotheMasterFunds,theAuditCommittee,afterconsultationwiththeInvestmentAdviserandAuditor,considersthekeyriskofmisstatementinitsFinancialStatementstobethevaluationofitsinvestmentsintheMasterFunds,butisalsomindfuloftheriskoftheoverrideofcontrolsbyitstwomainserviceproviders:theInvestment Adviser and the Administrator.TheInvestmentAdviserandtheAdministratortogethermaintainasystemofinternalcontrolonwhichtheyreporttotheBoard.TheBoardhasreviewedtheneedforaninternalauditfunctionandhasdecidedthatthesystemsandproceduresemployedbytheInvestmentAdviserandAdministratorprovidesufficientassurancethatasoundsystemofriskmanagementandinternalcontrol,whichsafeguardsshareholders’investmentandtheCompany’sassets,ismaintained.AninternalauditfunctionspecifictotheCompany is therefore considered unnecessary.TheAuditCommitteeisresponsibleforreviewingandmonitoringtheeffectivenessoftheinternalfinancialcontrolsystemsandriskmanagementsystemsonwhichtheCompanyisreliant.Thesesystemsaredesignedtoensureproperaccountingrecordsaremaintained,thatthefinancialinformationonwhichthebusinessdecisionsaremadeandwhichisissuedforpublicationisreliable,andthattheassetsoftheCompanyaresafeguarded.Suchasystemofinternalfinancialcontrolscanonlyprovidereasonableandnot absolute assurance against misstatement or loss.ThefollowingtablesummarisestheremunerationpayabletoKPMGandtootherKPMGInternationalmemberfirmsforauditandnon-auditservicesduringtheyearended31December2023and31December2022,translatedintothepresentationcurrencyattheexchange rate prevailing at 31 December 2023 and 31 December 2022, respectively.Inaddition,KPMGdirectorsaresubjecttoperiodicrotationofassignmentsonauditclientsunderapplicablelaws,regulationsandindependencerules.TheirrotationpoliciescomplywiththeFRCRevisedEthicalStandard2019whichstatesthattheengagementdirectorshouldberotatedafterservinginthiscapacityfortherelevantperiodnolongerthanfiveyears.Thisrotationpolicyiscontinuallymonitored,StevenStormonthwasfirstappointedastheauditengagementdirectorfortheyearended31December2019audit.39 . GOVERNANCE Management Engagement Committee ReportChairman and MembershipKey ObjectivesResponsibilities• • • • • • MEC MeetingsMain Activities during the yearContinued Appointment of the Investment Adviser and other Service ProvidersRichard BurwoodManagement Engagement Committee Chairman18 April 2024OnlymembersoftheMECandtheCompanySecretaryhavetherighttoattendMECmeetings.However,representativesoftheGeneralPartner, Investment Adviser and other service providers may be invited by the MEC to attend meetings as and when appropriate.To annually review the performance, relationships and contractual terms of all service providers (including the Investment Adviser);reviewingthetermsoftheInvestmentAdvisoryAgreementfromtimetotimetoensurethatthetermsthereofconformwithmarketandindustrypracticeandremaininthebestinterestsofShareholdersandmakingrecommendationstotheBoardonanyvariationtotheterms of the Investment Advisory Agreement which it considers necessary or desirable;recommendingtotheBoardwhetherthecontinuingappointmentoftheAdviserisinthebestinterestsoftheCompanyandShareholders, and the reasons for this recommendation;monitoring compliance by providers of other services to the Company with the terms of their respective agreements from time to time;reviewing and considering the appointment and remuneration of providers of services to the Company; andconsidering any points of conflict which may arise between the providers of services to the Company.TheCompanyhasestablishedaManagementEngagementCommittee(“MEC”)withformallydelegateddutiesandresponsibilitieswithinthe written terms of reference (which are available from the Company’s website www.fairoaksincome.com).TheMECmeetsatleastonceayear.ItcomprisestheentireBoardandischairedbyRichardBurwoodwhotookoverchairmanshipfromClaudioAlbanesewhoretiredon31December2023.MrBurwoodandtheothermembers,FionnualaCarvillandJonBridel,areallindependentDirectors.OnlyindependentDirectorsserveontheMECandmembersoftheMEChavenolinkswiththeInvestmentAdviseroranyotherserviceprovider.TheMECisresponsiblefortheregularreviewofthetermsoftheInvestmentAdvisoryAgreementandtheperformanceoftheAdministratorandtheInvestmentAdviserandalsotheCompany’sotherserviceproviders.Themembershipof the MEC and its terms of reference are kept under review.To review performance of all service providers (including the Investment Adviser).TheMECmetinDecember2023andthemeetingwasthenadjournedtoJanuary2024.TheMECreviewedtheperformance,relationshipsandcontractualtermsofallserviceprovidersatanadjournmentoftheDecembermeeting.Furthermore,theMECreviewedtheapproachestoGDPR,CriminalJusticeAct,Anti-bribery,cybersecurity,ESG,discriminationanddiversity&equality,amongstothermatters, by its service providers.TheBoardcontinuallyevaluatestheInvestmentAdviserandotherserviceproviders,itreviewsinvestmentperformanceateachBoardmeetingandaformalreviewofallserviceprovidersisconductedannuallybytheMEC.Theannualthird-partyserviceproviderreviewprocessincludestwo-wayfeedback,whichprovidestheBoardwithanopportunitytounderstandtheviews,experiencesandanysignificantissuesencounteredbyserviceprovidersduringtheyear.AspartoftheBoard’sannualperformanceevaluation,feedbackisreceived on the quality of service and the effectiveness of the working relationships with each of the Company’s key service providers.40 . Independent Auditor's Report to the
Members of Fair Oaks Income Limited
Our opinion is unmodified
We have audited the financial statements of Fair Oaks Income Limited (the “Company”), which comprise the statement of financial
position as at 31 December 2023, the statements of comprehensive income, changes in shareholders’ equity and cash flows for the
year then ended, and notes, comprising material accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
•
•
•
give a true and fair view of the financial position of the Company as at 31 December 2023, and of the Company’s financial
performance and cash flows for the year then ended;
are prepared in accordance with International Financial Reporting Standards; and
comply with the Companies (Guernsey) Law, 2008.
Basis for Opinion
in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
We conducted our audit
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including the FRC Ethical Standard as required by the Crown Dependencies' Audit Rules and
Guidance. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Key Audit Matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
In arriving at our audit opinion above, the key audit matter
opinion thereon, and we do not provide a separate opinion on these matters.
was as follows (unchanged from 2022):
The risk
Our response
Financial assets at fair value through
profit or loss (“Investments”)
US$220.47 million; (2022 US$234.98
million)
Refer to pages 37 to 39 (Report of the Audit
Committee), note 2 (Principal Accounting
Policies), note 3 (Use of Judgements and
Estimates) and note 6 (Financial Assets at
Fair Value Through Profit or Loss)
Valuation of investments:
Our audit procedures included:
Basis:
Control evaluation:
The Company holds investments in FOIF
II LP (“Master Fund II”) and FOMC III LP
(“Master Fund III”) (together the “Master
fair
Funds”) which are designated at
value
and
profit
represents 90.3% of the Company’s net
assets.
through
loss
or
value of
The fair
the Company’s
investment in the Master Funds reflects
the Company’s proportionate share of
the Master Funds’ net asset value.
Master Fund III’s net asset value reflects
its proportionate share of Master Fund
II’s and Wollemi
Investments I LP’s
(“Wollemi”) net asset value and its own
portfolio
investment
comprising
Loan
Collateralised
Mezzanine
Obligation positions (“CLO’s”). Master
Fund II’s net asset value incorporates
the fair value of
its own investment
portfolio which comprises: Mezzanine
and Equity CLO’s and a proportionate
share of the net asset value of Wollemi.
assessed
We
implementation of
valuation of the Company’s Investments.
the
the control over
design
and
the
Evaluation of the Valuation Agent:
of
With the assistance of our KPMG valuation
specialist we:
• assessed the objectivity, capability and
competence
the Valuation Agent
engaged by the Master Funds and Wollemi
to provide Price Quotes; and
• assessed the methodology applied by the
Valuation Agent
in developing fair value
Price Quotes.
Valuation procedures, including use of
KPMG valuation specialist:
• For the investments valued using the
proportionate share of net asset value we:
— assessed whether the net asset values
were representative of their fair values;
41 .
Independent Auditor's Report to the
Members of Fair Oaks Income Limited
Key Audit Matters: our assessment of the risks of material misstatement (continued)
The risk
Our response
pre-CLO position
Wollemi is also invested principally into a
portfolio of Equity CLO positions and a
Warehoused
(the
“Warehouse”).
The fair value of 68% of the CLO’s held
by the Master Funds and Wollemi and
the Warehouse are determined using
(“Price Quotes”)
indicative
obtained from the independent
third
party valuation provider (the “Valuation
Agent”) or other
third party market
sources. 32% of the fair value of CLO’s
held by the Master Funds and Wollemi
are
internally
determined
generated models.
prices
using
Risk:
valuation
The
the Company’s
of
Investments is considered a significant
area of our audit, given that it represents
the majority of
the
Company.
in that valuation is
the use of significant estimates and
judgements in determining the fair value
the
underlying CLOs
the
of
Warehouse.
the net assets of
Inherent
and
and
agreed
statements
— recalculated the proportionate share of
the net asset values;
— agreed the fair value to a net asset
value statement received from that fund’s
administrator;
— obtained the coterminous audited
financial
the
audited net asset value to the net asset
value statement; and
— considered the basis of preparation of
the audited financial statements, together
with accounting policies applied and
whether the audit opinion was unmodified.
• We independently obtained the Valuation
Agent’s pricing reports and agreed the
Price Quotes provided by the Valuation
Agent to those used in the Valuation of the
CLOs held by the Master Funds and
Wollemi.
• For 100% of the CLO positions held by
the Master Funds and Wollemi, with the
support of our KPMG valuation specialist,
we determined independent
reference
prices either by obtaining external pricing
sources where available, or through the
fundamental cash flow modelling
use of
sourcing key inputs and assumptions used,
such as default rates, prepayment rates
and recovery rates from observable market
data and agreed the outcome to the prices
used in the valuation of these CLOs.
• For the Warehouse held by Wollemi, with
the support of our KPMG valuation
specialist, we determined independent
reference
underlying
for
warehouse loan and bond positions and
recalculated the value attributable to
Wollemi.
prices
the
Assessing disclosures:
also
considered
the Company’s
We
disclosures in relation to use of estimates
and judgements in determining the fair
value
the
Company’s Investment valuation policies
(Note 2) and fair value disclosures (Note 6)
for compliance with IFRS.
Investments
(Note 3),
of
42 .
Independent Auditor's Report to the
Members of Fair Oaks Income Limited
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at $5.2 million, determined with reference to a benchmark of net assets of
$244 million of which it represents approximately 2% (2022: 2%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account
balances add up to a material amount across the financial statements as a whole. Performance materiality for the Company was set at
75% (2022: 75%) of materiality for the financial statements as a whole, which equates to $3.9 million. We applied this percentage in our
determination of performance materiality because we did not identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $260,000, in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of significant
risks of material misstatement and the associated audit procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to
cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern
for at least a year from the date of approval of the financial statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or ability to continue operations over the going concern period. The risks that
we considered most likely to affect the Company's financial resources or ability to continue operations over this period were:
•
•
Availability of capital to meet operating costs and other financial commitments; and
The recoverability of financial assets subject to credit risk.
We considered whether these risks could plausibly affect the liquidity in the going concern period by comparing severe, but plausible
downside scenarios that could arise from these risks individually and collectively against the level of available financial resources
indicated by the Company’s financial forecasts.
We considered whether the going concern disclosure in note 2 to the financial statements gives a full and accurate description of the
directors' assessment of going concern.
Our conclusions based on this work:
•
•
•
we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is
appropriate;
we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for
the going concern period; and
we found the going concern disclosure in the notes to the financial statements to be acceptable.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will
continue in operation.
43 .
Independent Auditor's Report to the
Members of Fair Oaks Income Limited
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive
or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
•
•
•
enquiring of management as to the Company’s policies and procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged fraud;
reading minutes of meetings of those charged with governance; and
using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk
that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk
related to revenue recognition because the Company’s revenue streams are simple in nature with respect to accounting policy choice,
and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did
not identify any additional fraud risks.
We performed procedures including
•
•
Identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting
documentation; and
incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from
our sector experience and through discussion with management (as required by auditing standards), and from inspection of the
Company’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures regarding
compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity’s procedures for complying with regulatory requirements.
The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and
taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related
financial statement items.
The Company is subject to other laws and regulations where the consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or impacts on the Company’s
ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the
regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-
compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any.
Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect
that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in
the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement.
We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and
regulations.
44 .
Independent Auditor's Report to the
Members of Fair Oaks Income Limited
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report
but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if,
in our opinion:
•
•
•
the Company has not kept proper accounting records; or
the financial statements are not in agreement with the accounting records; or
we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 35, the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than the Company’s members, as a body
This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have
formed.
Steven Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
18 April 2024
45 .
FINANCIAL STATEMENTS
Statement of Comprehensive Income
For the year ended 31 December 2023
Revenue
Net gains on financial assets at fair value through profit or loss
Interest income
Net foreign exchange gains / (losses)
Total revenue
Expenses
Investment advisory fees
Directors' fees and expenses
Legal and professional fees
Audit and interim review fees
Registrar fees
Listing fees
Administration fees
Broker fees
Other expenses
Total operating expenses
1 January 2023 to 1 January 2022 to
31 December 2023 31 December 2022
US$
US$
Note
6
7
8
8
8
30,987,658
1,117,468
28,708
133,228
235,886
(54,217)
32,133,834
314,897
211,438
218,274
29,969
161,709
67,704
12,768
123,061
147,995
175,799
139,855
209,522
19,008
176,904
73,481
17,656
127,533
136,122
102,081
1,148,717
1,002,162
Profit / (loss) and total comprehensive income / (loss) for the year
30,985,117
(687,265)
Basic and diluted earnings / (losses) per 2021 Share
Basic and diluted earnings / (losses) per Realisation Share
11
11
0.0685
0.0769
(0.0016)
(0.0005)
All items in the above statement are derived from continuing operations.
The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements.
46 .
FINANCIAL STATEMENTS
Statement of Changes in Shareholders' Equity
For the year ended 31 December 2023
Note
Share
capital
(Realisation
Shares)
Share
capital (2021
Shares)
Retained
earnings
(Realisation
Shares)
Retained
earnings
(2021 Shares)
Total Equity
At 1 January 2023
Total comprehensive income:
Profit for the year
Total comprehensive profit for the year
Transactions with Shareholders:
Dividends declared during the year
Realisation Share redemptions paid during
the year
Share buy-backs
Total transactions with Shareholders
At 31 December 2023
4
10
10
US$
US$
US$
US$
US$
55,251,707 383,148,853
(23,297,298)
(152,757,973)
262,345,289
-
-
-
-
-
-
4,190,991
4,190,991
26,794,126
26,794,126
30,985,117
30,985,117
(4,366,461)
(31,300,597)
(35,667,058)
-
(3,255,010)
(10,468,165)
-
(3,255,010)
(10,468,165)
51,996,697 372,680,688
-
-
(4,366,461)
(23,472,768)
-
-
(31,300,597)
(157,264,444)
(3,255,010)
(10,468,165)
(49,390,233)
243,940,173
Note
Share
capital
(Realisation
Shares)
US$
Share
capital (2021
Shares)
US$
Retained
earnings
(Realisation
Shares)
US$
Retained
earnings
(2021 Shares)
Total Equity
US$
US$
At 1 January 2022
Total comprehensive loss:
Loss for the year
Total comprehensive loss for the year
Transactions with Shareholders:
Dividends declared during the year
Realisation Share redemptions paid during
the year
Share buy-backs
Total transactions with Shareholders
At 31 December 2022
4
10
10
59,251,697 384,339,570
(17,464,727)
(113,601,494)
312,525,046
-
-
-
-
-
-
(28,714)
(28,714)
(658,551)
(658,551)
(687,265)
(687,265)
(5,803,857)
(38,497,928)
(44,301,785)
-
(3,999,990)
(1,190,717)
-
(3,999,990)
(1,190,717)
55,251,707 383,148,853
-
-
(5,803,857)
(23,297,298)
-
-
(38,497,928)
(152,757,973)
(3,999,990)
(1,190,717)
(49,492,492)
262,345,289
The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements.
47 .
FINANCIAL STATEMENTS Statement of Financial Position At 31 December 202331 December 202331 December 2022NoteUS$US$AssetsCash and cash equivalents25,170,09327,838,142Other receivables and prepayments12593,446117,989Financial assets at fair value through profit or loss6220,466,340234,984,455Total assets246,229,879262,940,586LiabilitiesTrade and other payables132,289,706112,545Distributions received in advance-482,752Total liabilities2,289,706595,297Net assets243,940,173262,345,289EquityRetained earnings(180,737,212)(176,055,271)Share capital10424,677,385438,400,560Total equity243,940,173262,345,289Net Assets attributable to 2021 Shareholders215,416,244230,390,880Number of 2021 Shares10382,071,610402,709,500Net asset value per 2021 Share0.56380.5721Net Assets attributable to Realisation Shareholders28,523,92931,954,409Number of Realisation Shares1049,906,35855,578,441Net asset value per Realisation Share0.57150.5749Jon BridelRichard BurwoodDirectorChairmanThe accompanying notes on pages 50 to 79 form an integral part of the Financial Statements.TheFinancialStatementsonpages46to79wereapprovedandauthorisedforissuebytheBoardofDirectorson18April 2024 and signed on its behalf by:48 . FINANCIAL STATEMENTS
Statement of Cash Flows
For the year ended 31 December 2023
Cash flows from operating activities
Profit / (loss) for the year
Adjustments for:
Net gains on financial assets at fair value through profit or loss
Net foreign exchange (gains) / losses
Increase in receivables and prepayments
Increase in trade and other payables
Income distributions received from Master Fund II
Income distributions received from Master Fund III
Capital distributions received from Master Fund II
Purchases during the year
Net cash flow from operating activities
Cash flows from financing activities
Realisation Share redemptions paid
Share buy-backs
Dividends paid during the period
Net cash flow used in in financing activities
1 January 2023 to 1 January 2022 to
31 December 2023 31 December 2022
US$
US$
Note
6
6
6
10
10
4
30,985,117
(687,265)
(30,987,658)
(28,708)
(31,249)
(23,023)
43,175
6,860,431
42,037,951
370,269
(4,698,064)
44,559,490
(1,155,020)
(10,434,169)
(35,667,058)
(47,256,247)
(133,228)
54,217
(766,276)
(20,362)
5,199
7,560,302
48,658,678
20,653,039
-
76,090,580
(3,999,990)
(1,190,717)
(44,301,785)
(49,492,492)
Net (decrease) / increase in cash and cash equivalents
(2,696,757)
26,598,088
Cash and cash equivalents at beginning of year
27,838,142
1,294,271
Effect of foreign exchange rate changes during the year
28,708
(54,217)
Cash and cash equivalents at end of year
25,170,093
27,838,142
The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements.
49 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
1. GENERAL INFORMATION
Fair Oaks Income Limited (the “Company”) was registered in Guernsey under the Companies (Guernsey) Law, 2008 on 7
March 2014. The Company’s registration number is 58123 and it
is regulated by the Guernsey Financial Services
Commission as a registered closed-ended collective investment scheme under The Registered Collective Investment
Scheme Rules and Guidance 2021. The Company began trading on the Specialist Fund Segment (“SFS”) of the London
Stock Exchange on 12 June 2014.
Reorganisation
On 19 April 2021, the Company announced the result of its reorganisation proposal, being that 62,562,883 2017 Shares had
been elected for re-designation as Realisation Shares (the “Realisation Shares”), representing 13.4% of the 2017 Shares in
issue, and 405,815,477 2017 Shares were re-designated as 2021 Shares (the “2021 Shares”), representing the balance of
86.6% of the 2017 Shares in issue (including 650,000 shares held in Treasury). The Company makes its investments through
FOIF II LP (the “Master Fund II”) and FOMC III LP (the “Master Fund III”), in both of which the Company is a limited partner
(the “Master Fund II” and the “Master Fund III” together the “Master Funds”). The Master Fund II was registered in Guernsey
on 24 February 2017 and the Master Fund III was registered in Guernsey on 10 March 2021 under The Limited Partnerships
(Guernsey) Law, 1995. The purpose of the reorganisation was to allow those Shareholders who wished to extend the life of
their investment in the Company beyond the planned end date of the Master Fund II, being 21 June 2026, and to be able to
do so by having their 2017 Shares re-designated as 2021 Shares. These 2021 Shares investing in the new Master Fund III,
which has a planned end date of 12 June 2028 and an investment objective and policy substantially similar to that of Master
Fund II.
At 31 December 2023, the Company has 49,906,358 Realisation Shares (31 December 2022: 55,578,441 Realisation
Shares) and 382,071,610 2021 Shares (31 December 2022: 402,709,500 2021 Shares) in issue. During the period ended 31
December 2023 the Company bought back 20,637,890 2021 shares for US$10,468,165 and redeemed 5,672,083
Realisation Shares for US$3,255,010. The Realisation Shares invest solely into the Master Fund II and the 2021 Shares
invest solely into the Master Fund III. At 31 December 2023, the Company had direct holdings of 9.59% (31 December 2022:
9.59%) in the Master Fund II and 95.43% (31 December 2022: 95.32%) holding in Master Fund III, which in turn had a
holding of 62.21% (31 December 2022: 62.21%) in the Master Fund II. Together, the Company held a direct and indirect
holding of 68.96% (31 December 2022: 68.89%) in the Master Fund II.
The Master Funds
At 31 December 2023, the Master Fund II had six limited partners (31 December 2022: six limited partners), including Fair
Oaks Founder II LP, a related entity. At 31 December 2023, the Master Fund III had three limited partners (31 December
2022: three limited partners), including Fair Oaks Founder VI LP. The General Partner of the Master Fund II and Master Fund
III is Fair Oaks Income Fund (GP) Limited (the “General Partner” or “GP”).
Cycad and Wollemi
The Master Fund II is also invested into Cycad Investments LP (“Cycad”). Cycad is a Limited Partnership registered in the
United States of America on 2 June 2017. Aligned with the Company’s investment policy, Cycad also invests into Collateral
Loan Obligations (“CLOs”). On 9 March 2021, a new Guernsey limited partnership was established called Wollemi
Investments I LP (“Wollemi”) also investing in CLOs. At 31 December 2023, the Master Fund II held 89.43% (31 December
2022: 100.00%) and Master Fund III held 10.57% (31 December 2022: 0.00%) of the commitment capital of Wollemi.
Founder Partners
Fair Oaks Founder II LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of
Master Fund II. Fair Oaks Founder VI LP, a Guernsey limited partnership, has been established to act as the Founder
Limited Partner of Master Fund III.
General Partner
The General Partner of the Master Fund II, Master Fund III, Cycad and Wollemi is Fair Oaks Income Fund (GP) Limited (the
“General Partner” or “GP”). The Master Funds’ invest in portfolios consisting primarily of CLOs. The Company may also
invest in Qualifying Short Term Investments if at any time the Company holds any uninvested cash.
With effect from 15 May 2014, Fair Oaks Capital Limited (the “Investment Adviser”) was appointed as the Investment
Adviser.
50 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
2. PRINCIPAL ACCOUNTING POLICIES
Statement of Compliance
The Financial Statements, which give a true and fair view, have been 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”) and are in compliance with the Companies
(Guernsey) Law, 2008 and the Prospectus Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse
Directive (as implemented in the UK through the Financial Services and Markets Authority).
Basis of Preparation
The Company’s Financial Statements have been prepared on a historical cost convention, except for financial assets
measured at fair value through profit or loss.
The preparation of Financial Statements in conformity with IFRS requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
and judgements are discussed in note 3. The principal accounting policies adopted are set out below.
The Directors believe that the Annual Report and Financial Statements contain all of the information required to enable
shareholders and potential
investors to make an informed appraisal of the investment activities and profit or loss of the
Company for the period to which it relates and does not omit any matter or development of significance.
As explained below, the Company qualifies as an investment entity and is therefore not permitted to prepare consolidated
Financial Statements under IFRS.
Going Concern
The Directors have assessed the financial position of the Company as at 31 December 2023 and the factors that may impact
its performance (including the potential impact on markets and supply chains of geo-political risks such as the current crisis in
Ukraine and the Middle East, continuing macro-economic factors and inflation) in the forthcoming year.
Russia/Ukraine crisis
The Master Funds’ CLO investments do not hold any securities in the Russia/Ukraine region and as such the performance or
creditworthiness of the underlying CLOs have not been significantly impacted. Commodity prices due to the invasion of
Ukraine (mainly oil/gas, metals and wheat) have impacted some of the companies to which the CLOs have loans but many
companies were already subject to input price inflation before the Ukraine invasion and it is not expected that the additional
cost inflation will significantly impacted the performance of the CLOs. The Directors with the Company’s Investment Adviser,
continue to closely monitor the situation and the resulting disruption to supply chains, particularly with regard to energy
prices.
Middle East crisis
The current conflict in the Middle East region is unlikely to impact the performance or creditworthiness of the underlying
CLOs. The impact of further escalations in the area are continuously monitored by the board, especially the possible impact
on oil prices and supply chain disruptions.
The Investment Adviser continues to carefully monitor the performance of the Master Funds’ investments, working closely
with the Directors on current and emerging risks to the Company.
Following due consideration and after a review of the Company’s holdings in cash and cash equivalents, investments and a
consideration of the income deriving from, and the viability of, the investments in the Master Funds, the Directors believe that
it is appropriate to adopt the going concern basis in preparing the Financial Statements, as the Company has adequate
financial resources to meet its liabilities as they fall due for at least the 12 month period from the date of the approval of the
Financial Statements.
51 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
2. PRINCIPAL ACCOUNTING POLICIES (continued)
New Accounting Standards and interpretations adopted in the reporting period
The following standards and interpretations have been applied where relevant in these Financial Statements:
•
•
IFRS 17 Insurance Contracts.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements: Disclosure of Accounting Policies.
Amendments to IAS 8 Accounting Policies: Definition of Accounting Estimates.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction.
Amendment to IAS 12 Income Taxes: International Tax Reform – Pillar Two Model Rules.
•
•
•
The adoption of these standards has not had a material impact on these Financial Statements of the Company.
New Accounting Standards and interpretations applicable to future reporting periods
At the date of approval of these Financial Statements, the following standards and interpretations, which have not been
applied in these Financial Statements, were in issue but not yet effective:
•
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current ,
effective for periods commencing on or after 1 January 2024.
Amendments to IFRS 16 Leases: Liability in a Sale and Leaseback , effective for periods commencing on or after 1
January 2024.
Amendments to IAS 1 Presentation of Financial Statements: Non-current Liabilities with Covenants , effective for periods
commencing on or after 1 January 2024.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance
Arrangements , effective for periods commencing on or after 1 January 2024.
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability , effective for periods
commencing on or after 1 January 2025.
•
•
•
•
These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or
future reporting periods or on foreseeable future transactions.
Interest income
Interest income comprises interest income from cash and cash equivalents. Interest income is recognised on a time-
proportionate basis using the effective interest method.
Net gains on Financial Assets at Fair Value through Profit or Loss
Net gains on financial assets at fair value through profit or loss includes all realised and unrealised fair value changes,
foreign exchange gains/(losses) and income and capital distributions received.
Net realised (losses)/gains from financial assets at fair value through profit or loss are calculated using the average cost
method.
Expenses
Expenses of the Company are charged through profit or loss in the Statement of Comprehensive Income on an accruals
basis.
2021 Shares, Realisation Shares and C Shares
The 2021 shares, Realisation shares and C shares (when in issue) of the Company are classified as equity based on the
substance of the contractual arrangements and in accordance with the definition of equity instruments under IAS 32.
The proceeds from the issue of participating shares are recognised in the Statement of Changes in Shareholders’ Equity, net
of incremental issuance costs.
52 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Financial Instruments
Financial assets – classification
The Company classifies its financial assets and financial liabilities into categories in accordance with IFRS 9.
On initial recognition, the Company classifies financial assets as measured at amortised cost or at fair value through profit or
loss (“FVTPL”).
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”).
All other financial assets of the Company are measured at FVTPL.
In making an assessment of the objective of the business model in which a financial asset is held, the Company considers all
of the relevant information about how the business is managed.
The Company has determined that it has two business models.
•
•
Held-to-collect business model: this includes cash and cash equivalents, prepayments and distributions receivable.
These financial assets are held to collect contractual cash flow.
Other business model:
managed and their performance is evaluated, on a fair value basis, with frequent sales taking place.
this includes investments in the Master Funds and derivatives. These financial assets are
The Investment entities exception to consolidation (“Investment entities exception”) in IFRS 10 ‘Consolidated Financial
Statements’ (“IFRS 10”) requires subsidiaries of an investment entity to be accounted for at fair value through profit or loss in
accordance with IFRS 9 ‘Financial Instruments’ (“IFRS 9”).
Cash comprises current deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of
meeting short-term cash commitments rather than for investments or other purposes.
A non-derivative financial asset with fixed or determinable payments could be classified as a loan and receivable unless it
was quoted in an active market or was an asset for which the holder may not recover substantially all of its initial investment,
other than because of credit deterioration.
Financial liabilities – Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL.
A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on
initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest
expense, are recognised in profit or loss.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense
and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised
in profit or loss.
Financial liabilities at amortised cost:
This includes trade and other payables and distributions received in advance.
Financial Assets and Liabilities - recognition, measurement and gains and losses
Recognition and initial measurement
Financial assets and financial liabilities are measured initially at fair value, being the transaction price, including transaction
costs for items that will subsequently be measured at amortised cost, on the trade date. Transaction costs on financial assets
at fair value through profit or loss are expensed immediately.
53 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Subsequent measurement
After initial measurement, the Company measures financial instruments classified at fair value through profit or loss at their
fair values. Changes in fair value are recognised in “Net gains on financial assets at fair value through profit or loss” in the
Statement of Comprehensive Income.
Derecognition
A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or it transfers
the financial asset and the transfer qualifies for derecognition in accordance with IFRS 9. A financial liability is derecognised
when the obligation specified in the contract is discharged, cancelled or expires.
Investments in the Master Fund III and the Master Fund II
The Board of Directors (the “Board”) has determined that the Company has all the elements of control as prescribed by IFRS
10 in relation to the Master Fund III, and then indirectly the Master Fund II, as the Company is the main limited partner in the
Master Fund III and indirectly (via its investment in the Master Fund III) is the main limited partner in the Master Fund II, is
exposed and has rights to the returns of the Master Fund III (and indirectly in the Master Fund II) and has the ability either
directly, or through the Investment Adviser, to affect the amount of its returns from the Master Fund III (and indirectly in the
Master Fund II).
The Investment entities exemption requires that an investment entity that has determined that it is a parent under IFRS 10
shall not consolidate certain of its subsidiaries; instead it is required to measure its investment in these subsidiaries at fair
value through profit or loss in accordance with IFRS 9.
The criteria which defines an investment entity are as follows:
•
•
•
An entity has obtained funds from one or more investors for the purpose of providing those investors with investment
management services;
An entity has committed to its investors that its business purpose is to invest funds solely for the returns from capital
appreciation, investment income or both; and
An entity measures and evaluates the performance of substantially all of its investments on a fair value basis.
The Company provides investment management services and has a number of investors who pool their funds to gain access
to these services and investment opportunities that they might not have had access to individually. The Company, being
listed on the SFS of the London Stock Exchange, obtains funding from a diverse group of external shareholders.
Consideration is also given to the time frame of an investment. An investment entity should not hold its investments
indefinitely but should have an exit strategy for their realisation. As both the Master Fund III’s and Master Fund II’s
investments have documented maturity/redemption dates or will be sold if other investments with better risk/reward profile
are identified, the Board of Directors consider that this demonstrates a clear exit strategy.
The Master Fund III and Master Fund II measure and evaluate the performance of substantially all of their investments on a
fair value basis. The fair value method is used to represent the Company’s performance in its communication to the market,
including investor presentations. In addition, the Company reports fair value information internally to the Board of Directors,
who use fair value as a significant measurement attribute to evaluate the performance of its investments and to make
investment decisions for mature investments.
The Company has determined that the fair value of the Master Fund III is the Master Fund III’s Net Asset Value (“NAV”), and
incorporated into the Master Fund III’s NAV is the Master Fund II NAV. The Company also determined that the fair value of
the Master Fund II is the Master Fund II’s NAV.
The Company, via its investments in the Master Funds, is also invested into Wollemi and Cycad. The Company has
determined that the fair value of the Wollemi is the Wollemi’s Net Asset Value (“NAV”), and incorporated into the Wollemi’s
NAV is the Cycad NAV.
54 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
2. PRINCIPAL ACCOUNTING POLICIES (continued)
Investments in the Master Fund III and the Master Fund II (continued)
The Company has concluded that the Master Fund III, and then indirectly the Master Fund II, for which the Company’s
commitment is detailed further in Note 14, meet the definition of unconsolidated subsidiaries under IFRS 12 ‘Disclosure of
Interests in Other Entities’ (“IFRS 12”) and have made the necessary disclosures in notes 5 and 6 of these Financial
Statements.
Foreign Currency
Functional and presentation currency
The Board of Directors has determined that the functional currency of the Company is US Dollar. In doing so, they have
considered the following factors: that US Dollar is the currency of the primary economic environment of the Company, the
currency in which the original finance was raised and distributions will be made, the currency that would be returned if the
Company was wound up, and the currency to which the majority of the underlying investments are exposed. The Financial
Statements of the Company are presented in US Dollars, which has been selected as the presentation currency of the
Company.
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 are recognised in
the Statement of Comprehensive Income.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not
retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the reporting date when
fair value was determined.
Dividends
Dividends payable to the holders of 2021 Shares and Realisation Shares are recorded through the Statement of Changes in
Shareholders’ Equity when they are declared to the respective shareholders. The payment of any dividend by the Company
is subject to the satisfaction of a solvency test as required by the Companies (Guernsey) Law, 2008.
Segmental Reporting
The Board has considered the requirements of
IFRS 8 – “Operating Segments”. The Company has entered into an
Investment Advisory Agreement with the Investment Adviser under which the Investment Adviser is responsible for the
management of the Company’s investment portfolio, subject to the overall supervision of the Board of Directors. Subject to its
terms and conditions, the Investment Advisory Agreement requires the Investment Adviser to manage the Company’s
investment portfolio in accordance with the Company’s investment guidelines as in effect from time to time, including the
authority to purchase and sell securities and other investments and to carry out other actions as appropriate to give effect
thereto. However, the Board retains full responsibility to ensure that the Investment Adviser adheres to its mandate.
Moreover, the Board is fully responsible for the appointment and/or removal of the Investment Adviser. Accordingly, the
Board is deemed to be the “Chief Operating Decision Maker” of the Company.
In the Board of Directors’ opinion, the Company is engaged in a single segment of business, being investments into the
Master Fund II and the Master Fund III, which are Guernsey registered limited partnerships.
Segment information is measured on the same basis as that used in the preparation of the Company’s Financial Statements.
The Company receives no revenues from external customers, nor holds any non-current assets, in any geographical area
other than Guernsey.
55 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
3. USE OF JUDGEMENTS AND ESTIMATES
The preparation of Financial Statements in accordance with IFRS requires the Board of Directors to make judgements,
estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and
expenses, disclosure of contingent assets and liabilities at the date of the Financial Statements and income and expenses
during the year. The estimates and associated assumptions are based on various factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and future periods.
The principal estimates and judgements made by the Board are as follows:
Judgements
Investment Entity
In accordance with the Investment Entities exemption contained in IFRS 10, the Board has determined that the Company
satisfies the criteria to be regarded as an investment entity and as a result measures its investments in the Master Fund III
and Master Fund II at fair value. This determination involves a degree of judgement (see note 2).
Estimates
Fair Value
The Company records its investments in the Master Fund III and the Master Fund II at fair value. Fair value is determined as
the Company’s share of the NAV of the investment. This share is net of any notional carried interest due to Fair Oaks
Founder VI LP (the “Founder Partner VI”), the Founder Partner of Master Fund III and Fair Oaks Founder II LP (the “Founder
Partner II”), the Founder Partner of Master Fund II. The Investment Adviser has reviewed the NAV of the investment and
determined that no adjustments regarding liquidity discounts were required.
4. DIVIDENDS
The Company’s policy is to declare dividends to 2021 and Realisation shareholders as follows:
2021 Shares
The Board intends to pay quarterly dividends to holders of 2021 Shares representing an amount in aggregate at least equal
to the gross income received by the Company from investments in the relevant financial year that are attributable to the 2021
Shares’ interest in Master Fund III and qualifying short term investments, less a proportionate share of the expenses of the
Company.
Realisation Shares
The Company intends to pay dividends to holders of Realisation Shares representing an amount in aggregate at least equal
to the gross income from investments received by the Company in the relevant financial period attributable to the Realisation
Shares’ interest in Master Fund II and qualifying short term Investments, less expenses of the Company.
The Company declared the following dividends per 2021 Share during the year ended 31 December 2023:
Period to
31 December 2022
31 March 2023
30 June 2023
30 September 2023
Payment date
31 March 2023
30 June 2023
21 September 2023
15 December 2023
Net dividend
Dividend rate
payable
per 2021 Share
(US$)
(cents)
7,999,885
2.0
7,841,901
2.0
7,767,875
2.0
2.0
7,690,936
8.0 31,300,597
Record date
3 March 2023
2 June 2023
25 August 2023
17 November 2023
Ex-dividend date
2 March 2023
1 June 2023
24 August 2023
16 November 2023
56 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
4. DIVIDENDS (continued)
The Company declared the following dividends per Realisation Share during the year ended 31 December 2023:
Period to
31 December 2022
31 March 2023
30 June 2023
30 September 2023
Payment date
31 March 2023
30 June 2023
21 September 2023
15 December 2023
Dividend rate
per Realisation
Share
(cents)
2.0
2.0
2.0
2.0
8.0
Net dividend
payable
(US$)
1,111,656
1,111,569
1,071,618
1,071,618
4,366,461
Record date
3 March 2023
2 June 2023
25 August 2023
17 November 2023
Ex-dividend date
2 March 2023
1 June 2023
24 August 2023
16 November 2023
The Company declared the following dividends per 2021 Share during the year ended 31 December 2022:
Period to
31 December 2021
31 March 2022
30 June 2022
30 September 2022
Payment date
18 March 2022
25 July 2022
15 September 2022
9 December 2022
Dividend rate
per 2021 Share
(cents)
2.5
2.5
2.5
2.0
9.5
Net dividend
payable
(US$)
10,059,716
10,103,277
10,112,955
8,221,980
38,497,928
Record date
18 February 2022
24 June 2022
19 August 2022
11 November 2022
Ex-dividend date
17 February 2022
23 June 2022
18 August 2022
10 November 2022
The Company declared the following dividends per Realisation Share during the year ended 31 December 2022:
Period to
31 December 2021
31 March 2022
30 June 2022
30 September 2022
Payment date
18 March 2022
25 July 2022
15 September 2022
9 December 2022
Dividend rate
per Realisation
Share
(cents)
2.5
2.5
2.5
2.0
9.5
Net dividend
payable
(US$)
1,564,070
1,564,221
1,563,990
1,111,576
5,803,857
Record date
18 February 2022
24 June 2022
19 August 2022
11 November 2022
Ex-dividend date
17 February 2022
23 June 2022
18 August 2022
10 November 2022
At 31 December 2023, the Company’s retained earnings include unrealised losses of US$192,233,945 (31 December 2022:
US$173,388,035) (see note 6). Gross income from investments excludes these unrealised losses which are capital in nature.
The default currency payment for dividends is US Dollars. However, shareholders can elect to receive their dividends in
British Pounds Sterling (“Sterling”) by registering under the Company’s Dividend Currency Election.
The rate per 2021 Share and Realisation Share to be used to pay shareholders who elected to receive their dividend in
Sterling will be announced on the London Stock Exchange each month prior to the payment date.
Under Guernsey law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test
prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts
when they fall due, and whether the value of a company’s assets is greater than its liabilities. The Company passed the
solvency test for each dividend paid.
Total dividends payable as at 31 December 2023 were US$nil (31 December 2022: US$nil).
57 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management
framework. The Company’s risk management policies are established to identify and analyse the risks faced by the
Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies
are reviewed regularly to reflect changes in market conditions and the Company’s activities. Below is a non-exhaustive
summary of the risks that the Company is exposed to as a result of its use of financial instruments:
Market Risk
Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates and equity prices, affecting
the Company’s income and/or the value of its holdings in financial instruments.
The Company’s exposure to market risk comes mainly from movements in the value of its investments in the Master Funds
and on a look-through basis to the underlying loans in each CLO.
Changes in credit spreads may further affect the Company’s net equity or net income directly through their impact on
unrealised gains or losses on investments within the Master Funds and on a look-through basis to the underlying loans in
each CLO.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters
while optimising the return on investments. The Company’s strategy for the management of market risk mirrors the strategy
of the Master Funds, driven by their investment objective to generate attractive, risk-adjusted returns, principally through
income distributions, by seeking exposure to US and European CLOs or other vehicles and structures which provide
exposure to portfolios consisting primarily of US and European floating rate senior secured loans and which may include non-
recourse financing. The Company’s market risk is managed on a daily basis by the Investment Adviser in accordance with
policies and procedures in place.
The Company intends to mitigate market risk generally by not making investments that would cause it to have exposure to a
single corporate issuer exceeding 5% of the Master Funds’ aggregate gross assets at the time of investment. Special
Purpose Vehicles such as CLOs are not considered corporate issuers. The Company’s market positions are monitored on a
quarterly basis by the Board of Directors.
Interest Rate Risk
The Company is exposed to interest rate risk through the investments held by the Master Funds and on a look-through basis
to the underlying assets in the CLOs.
Interest receivable by the Company on bank deposits or payable on bank overdraft positions will be affected by fluctuations
in interest rates, however, the underlying cash positions will not be affected.
A majority of the Company’s financial assets comprise investments into the Master Fund II and the Master Fund III, which
invest in income notes: Equity Subordinated and Mezzanine tranches of cash flow CLOs. The Master Fund II’s exposure, and
the Master Fund III’s exposure through its direct CLO investments and via its investment in the Master Fund II, to interest rate
risk is significantly mitigated by the fact that the majority of the underlying loans in each CLO bear interest at floating Euribor/
Term SOFR-based rates.
Interest rate benchmark reform
A fundamental reform of major interest rate benchmarks has been taking place globally. The reform aimed to replace some
interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as “IBOR reform”). The Master Funds
exposure to IBOR reform was through its investment in USD CLOs which held loans referenced to USD LIBOR with one-
month and three- month settings and have rated liabilities referenced to USD LIBOR with three-month settings. These
settings ceased to be provided after 30 June 2023 as announced by the Financial Conduct Authority (“FCA”) and the
alternative reference rate for US dollar LIBOR is the Secured Overnight Financing Rate (“SOFR”). All USD CLO's had SOFR
reference rates at year end.
58 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Market Risk (continued)
Interest Rate Risk (continued)
The following table shows the portfolio profile of the master funds at 31 December 2023 and 31 December 2022:
31 December 2023
31 December 2022
Master Fund III¹
US$
Master Fund II²
US$
Master Fund III¹
US$
Master Fund II²
US$
Investments with exposure to a floating
interest rate
Financial assets at fair value through profit
or loss
185,709,674
27,512,041
192,392,616
29,816,827
185,709,674
27,512,041
192,392,616
29,816,827
The following table shows the Board of Directors’ best estimate of the Company’s share of the sensitivity of the portfolio of
the Master Funds to stressed changes in interest rates, with all other variables held constant. The table assumes parallel
shifts in the respective forward yield curves.
Possible
reasonable
change in rate
31 December 2023
effect on
net assets and profit
or loss
US$
Possible
reasonable
change in rate
31 December 2022
effect on net
assets and profit
or loss
US$
-1%
1%
(706,011)
706,115
-1%
1%
(980,929)
983,637
Currency risk
The Company is exposed to very limited currency risk, as the majority of its assets and liabilities are denominated in US
Dollars.
The Company is exposed indirectly to currency risk through its investments into the Master Funds. The Master Funds’
portfolios are denominated in US Dollar and Euro. Accordingly, the value of such assets may be affected, favourably or
unfavourably, by fluctuations in currency rates which, if unhedged, could have the potential to have a significant effect on
returns. To reduce the impact of currency fluctuations and the volatility of returns which may result from currency exposure,
the Investment Adviser hedges any significant currency exposure of the assets of the Master Funds.
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only on a whole look-through portfolio basis.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only on a whole look-through portfolio basis.
59 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Market Risk (continued)
Currency risk (continued)
The Company’s share of the Master Funds’ total net foreign currency exposure at the year end was as follows:
EUR Exposure
Cash and cash equivalents
Other receivables
Trade and other payables
Derivatives at fair value through profit or loss
Financial assets at fair value through profit
and loss
31 December 2023
31 December 2022
Master Fund III¹
US$
Master Fund II²
US$
Master Fund III¹
US$
Master Fund II²
US$
49,899
-
-
7,131
-
-
31,424
3,349,510
(8,170)
5,082
541,683
(1,321)
(74,537,298)
(12,044,451)
(72,206,685)
(11,677,270)
87,889,988
11,872,110
77,033,839
12,247,884
Net EUR Exposure
13,402,589
(165,210)
8,199,918
1,116,058
GBP Exposure
Cash and cash equivalents
Trade and other payables
Net GBP Exposure
31 December 2023
31 December 2022
Master Fund III¹
US$
Master Fund II²
US$
Master Fund III¹
US$
Master Fund II²
US$
676,139
(154,302)
521,837
109,256
(10,601)
98,655
8,232
(152,270)
(144,038)
-
(17,252)
(17,252)
NET EXPOSURE
13,924,426
(66,555)
8,055,880
1,098,806
EUR / US Dollar
GBP / US Dollar
EUR / US Dollar
GBP / US Dollar
Possible change in
exchange rate
+/-10%
+/-10%
Possible change in
exchange rate
+/-20%
+/-30%
31 December 2023
net exposure
US$
13,237,379
620,492
31 December 2022
net exposure
US$
9,315,975
(161,291)
31 December 2023
effect on net assets
and profit or loss
US$
(-/+) 1,323,738
(-/+) 62,049
31 December 2022
effect on net assets
and profit or loss
US$
(-/+) 1,863,195
(-/+) 48,387
The sensitivity rate of 10% (31 December 2022: 20%) is regarded as reasonable due to the actual volatility over the last year
of US Dollar against Euro.
The sensitivity rate of 10% (31 December 2022: 30%) is regarded as reasonable due to the actual volatility over the last year
of US Dollar against Sterling.
1. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%).
2. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only.
60 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Market Risk (continued)
Other price risks
There is a risk that the fair value of future cash flows, on a look-through basis to the underlying CLOs, will fluctuate due to
changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused
by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded
in the market. The Board of Directors does not believe that the returns on investments are correlated to any specific index or
other price variable.
If the value of the Company’s investment in the Master Fund III were to increase or decrease by 25% (31 December 2022:
25%), the impact on the NAV of the Company would be +/- US$48,117,048 (31 December 2022: US$50,909,485).
If the value of the Company’s investment in the Master Fund II were to increase or decrease by 25% (31 December 2022:
10%), the impact on the NAV of the Company would be +/- US$6,737,592 (31 December 2022: US$7,836,629).
At 31 December 2023, the sensitivity rate of 25% (31 December 2022: 25%) is regarded as reasonable due to the actual
market price volatility experienced on the Master Funds’ CLO investments during the year.
Credit and Counterparty Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into with the Company, the Master Fund III, Master Fund II or a vehicle in which the Master Fund III or Master Fund II
invests, resulting in a financial loss to the Company. Credit risk arises principally from debt securities held, and also from
derivative financial assets and cash and cash equivalents. For risk management reporting purposes, the Company considers
and aggregates all elements of credit risk exposure (such as individual obligation default risk, country risk and sector risk).
The Company’s policy on credit risk mirrors that of the Master Fund III and the Master Fund II, which is to minimise its
exposure to counterparties with perceived higher risk of default by dealing only with counterparties that meet the credit
standards set out in the Company’s prospectus, and by taking collateral.
The table below analyses the Company’s maximum exposure to credit risk in relation to the components of the Statement of
Financial Position.
Cash and cash equivalents
Other Receivables (excluding prepayments)
Financial assets at fair value through profit or loss
31 December 2023
US$
31 December 2022
US$
25,170,093
572,922
220,466,340
246,209,355
27,838,142
94,520
234,984,455
262,917,117
At 31 December 2023, there were no financial assets past due or impaired (31 December 2022: none).
At 31 December 2023, the cash and cash equivalents and other assets of the Company, excluding its investments into the
Master Fund III and Master Fund II, and substantially all of the assets of the Master Fund II are held by BNP Paribas
Securities Services S.C.A. (the “Custodian”). The cash and substantially all of the assets of the Master Fund III are held by
U.S. Bank Global Corporate Trust Services, UK Branch (the “US Bank”). Bankruptcy or insolvency of the Custodian or US
Bank may cause the Company’s rights with respect to securities held by the Custodian or US Bank to be delayed or limited.
This risk is managed by monitoring the credit quality and financial positions of the Custodian or US Bank. The long-term
rating of the Custodian as at 31 December 2023 was A2 as rated by Moody’s (31 December 2022: Aa3) and A+ by Standard
& Poor’s (31 December 2022: A+). The long-term rating of US Bank as at 31 December 2023 was A2 (31 December 2022:
A1) as rated by Moody’s and A+ (31 December 2022: AA-) by Standard & Poor’s.
61 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
Credit risk is assessed from time to time by the Investment Adviser on a look-through basis to the underlying loans in each
CLO. The Investment Adviser seeks to manage this risk by providing diversification in terms of underlying assets, issuer
section, geography and maturity profile. The Master Funds concentration of credit risk by industry for the CLO investments,
on a look-through basis, as at 31 December 2023 and 31 December 2022 are summarised in the table below. The
Company’s credit risk is monitored on a quarterly basis by the Board of Directors.
The Master Funds have diversified their exposure to industry sectors. The top 10 are as follows:
Industry ¹
Healthcare & Pharmaceuticals
High Tech Industries
Services: Business
Banking, Finance, Insurance & Real Estate
Telecommunications
Services: Consumer
Construction & Building
Chemicals, Plastics & Rubber
Beverage, Food & Tobacco
Hotel, Gaming & Leisure
31 December 2023
%
31 December 2022
%
12.3 13.0
9.2 8.9
8.9 9.1
7.0 6.9
5.5 5.7
5.0 5.0
4.7 5.0
4.6 4.2
4.4 4.6
3.8 3.9
66.3
65.4
The Master Funds’ exposure to credit risk relating to the underlying CLO investments based on the country of registration
(not necessarily asset class exposure) as at 31 December 2023 and 31 December 2022 is summarised below. The Master
Funds’ exposure to credit risk, also summarised below, relates to its directly held CLO investments as well as Wollemi held
CLO investments based on the country of exposure of the CLO investments and the Limited Partnerships as at 31 December
2023 and 31 December 2022.
United States of America
Europe
Financial assets at fair value
through profit or loss
31 December 2023
31 December 2022
Master Fund III²
US$
Master Fund II³
US$
Master Fund III²
US$
Master Fund II³
US$
105,173,410
84,854,252
16,594,561
11,448,838
119,040,026
75,347,811
18,966,419
11,975,194
190,027,662
28,043,399
194,387,837
30,941,613
1. Shows the Company’s exposure in the underlying CLO investments through its investments in the Master Funds. Source: CLO trustee reports. Based on the Master Funds’ exposure and weighted by CLO size and Master Funds’ equity ownership
percentage.
2. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%) on a whole look through basis.
3. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only on a whole look-through basis.
62 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
The geographical breakdown of the underlying CLO investments is as follows:
Country
United States of America
France
United Kingdom
Netherlands
Germany
Spain
Switzerland
Luxembourg
Canada
Italy
Other
Total
31 December 2023
Master Funds¹
%
31 December 2022
Master Funds¹
%
65.7 68.9
8.7 7.8
6.2 6.2
4.1 3.8
3.3 3.4
2.3 1.7
1.6 1.0
1.5 1.8
1.3 1.3
1.2 1.0
4.1 3.1
100
100
The table below summarises the Master Funds’ underlying portfolio concentrations as of 31 December 2023 and 31
December 2022:
31 December 2023
Master Funds
31 December 2022
Master Funds
Maximum portfolio
holdings of a single
asset % of total
portfolio
Average portfolio
holdings % of total
portfolio
8.63%
7.11%
2.32%
2.11%
The tables below summarises the Master Funds’ portfolio by asset class and portfolio ratings as at 31 December 2023 and
31 December 2022:
By asset class
Equity Subordinated CLO notes
Mezzanine CLO notes
Limited Partnerships
Financial assets at fair value
through profit or loss
31 December 2023
31 December 2022
Master Fund III²
US$
Master Fund II³
US$
Master Fund III²
US$
Master Fund II³
US$
156,452,272
30,497,949
3,077,441
23,344,681
4,280,957
417,761
159,324,401
30,863,000
4,200,436
25,765,897
4,496,423
679,293
190,027,662
28,043,399
194,387,837
30,941,613
1. Shows the Company’s exposure in the underlying CLO investments through its investments in the Master Funds.
2. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%) on a whole look through basis.
3. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only on a whole look-through basis.
63 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
The breakdown of the underlying CLO investments by rating is as follows:
B
B-
B+
BB-
BB
CCC+
BB+
CCC
BBB-
CC
CCC-
NA
Other
Total
31 December 2023
Master Funds¹
%
31 December 2022
Master Funds¹
%
30.4
23.7
17.3
9.9
7.0
4.5
2.4
1.5
1.1
0.6
0.3
0.8
0.5
100
34.4
25.6
15.4
8.7
6.8
3.8
3.1
1.0
0.5
0.0
0.3
0.4
0.0
100
Activities undertaken by the Company, Master Fund III and Master Fund II may give rise to settlement risk. Settlement risk is
the risk of loss due to the failure of a counterparty to honour its obligations to deliver cash, securities or other assets as
contractually agreed.
For the majority of transactions, settlement risk is mitigated by conducting settlements through a broker to ensure that a trade
is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit
approval and limit monitoring processes.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset.
The Company’s policy and the Investment Adviser’s approach to managing liquidity is to ensure, as far as possible, that the
Company will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions,
including estimated redemptions of shares, without incurring unacceptable losses or risking damage to the Company’s
reputation.
The Company’s liquidity risk is managed on a daily basis by the Investment Adviser on a look-through basis to the underlying
loans in each CLO. The Investment Adviser monitors and considers the Company’s and the Master Funds cash balances,
projected expenses and projected income from investments when making any new investment recommendations.
Given the Company’s permanent capital structure as a closed-ended fund, it is not exposed to redemption risk. However, the
Company’s financial
investments in CLOs, and may include over-the-counter derivative
contracts, which are not traded in an organised public market and which may be illiquid.
instruments include indirect
The Company’s overall liquidity risk is monitored on a quarterly basis by the Board of Directors. Shareholders have no right
of redemption and must rely, in part, on the existence of a liquid market in order to realise their investment.
All liabilities of the Company are due within one financial year.
1. Shows the Master Funds’ exposure in the underlying CLO investments via the Company’s Master Fund III share through the 2021 Shares and direct share through the Realisation Shares.
64 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
5. FINANCIAL RISK MANAGEMENT (continued)
Operational Risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes,
technology and infrastructure supporting the Company’s activities relating to financial instruments, either internally or on the
part of service providers, and from external factors other than credit, market and liquidity risks such as those arising from
legal and regulatory requirements and generally accepted standards of investment management behaviour.
Operational risk is managed so as to balance the limiting of financial losses and damage to its reputation with achieving its
investment objective of generating returns to investors.
The primary responsibility for the development and implementation of controls over operational risk rests with the Board of
Directors. This responsibility is supported by the development of overall standards for the management of operational risk,
which encompasses the controls and processes at the service providers and the establishment of service levels with the
service providers.
The Board of Directors’ assessment of the adequacy of the controls and processes in place at the service providers with
respect to operational risk is carried out via regular discussions with the service providers and a review of the service
providers’ Service Organisation Controls (“SOC”) 1 reports on internal controls, if available.
Substantially all of the assets of the Company and Master Fund II are held by BNP Paribas Securities Services S.C.A.,
Guernsey Branch, in its capacity as the Custodian. Master Fund III assets are held in custody by U.S. Bank Global Corporate
Trust Services, UK Branch (together the “Custodians”). The bankruptcy or insolvency of the Custodians may cause the
Company’s rights with respect to the securities held by the Custodians to be limited. The Investment Adviser monitors the
credit ratings and capital adequacy of the Custodians on a quarterly basis, and reviews the findings documented in the SOC
1 report on the internal controls annually.
Capital Management
The Board of Director’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence
and to sustain future development of
is represented by the 2021 Shares and
Realisation Shares. Capital is managed in accordance with the investment policy, in pursuit of its investment objectives.
the Company. The Company’s capital
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
1 January 2023 to 31 December 2023
Realisation Shares
US$
2021 Shares
US$
Total Company
US$
Cost of financial assets at fair value through profit or loss at the
start of the year
Capital distributions received from Master Fund III / Master
Fund II
Drawdowns paid to Master Fund III / Master Fund II
Cost of financial assets at fair value through profit or loss at the
end of the year
Net unrealised losses on financial assets at the end of the year
Financial assets at fair value through profit or loss at the
end of the period
Movement in net unrealised loss during the year
Income distributions declared by Master Fund II
Income distributions declared by Master Fund III
Net gains on financial assets at fair value through profit or
loss
353,769,725
54,602,765
408,372,490
- (370,269)
(370,269)
4,698,064
-
4,698,064
358,467,789
54,232,496
412,700,285
(165,999,600)
(26,234,345)
(192,233,945)
192,468,189
27,998,151
220,466,340
(15,867,814)
-
42,552,686
(2,978,096)
7,280,882
-
(18,845,910)
7,280,882
42,552,686
26,684,872
4,302,786
30,987,658
65 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
1 January 2022 to 31 December 2022
Realisation Shares
2021 Shares
Total Company
Cost of financial assets at fair value through profit or loss at the
start of the year
Capital distributions received from Master Fund III / Master
Fund II
Cost of financial assets at fair value through profit or loss at the
end of the year
Net unrealised losses on financial assets at the end of the year
Financial assets at fair value through profit or loss at the
end of the period
Movement in net unrealised loss during the year
Income distributions declared by Master Fund II
Income distributions declared by Master Fund III
Net losses on financial assets at fair value through profit
or loss
US$
US$
US$
371,719,138
57,306,391
429,025,529
(17,949,413)
(2,703,626)
(20,653,039)
353,769,725
54,602,765
408,372,490
(150,131,786)
(23,256,249)
(173,388,035)
203,637,939
31,346,516
234,984,455
(48,296,982)
-
48,354,429
(7,764,727)
7,840,508
-
(56,061,709)
7,840,508
48,354,429
57,447
75,781
133,228
As at 31 December 2023, the Company had a 95.43% holding of the limited partnership interests in the Master Fund III on
behalf of the 2021 Shares, which in turn had a holding of 62.21% in the Master Fund II and 10.57% in Wollemi (31 December
2022: 0%). The Company also retained a direct holding of 9.59% in the Master Fund II on behalf of the Realisation Shares.
Look-through financial information: Master Funds’ Financial Position
The following tables reconcile the Company’s proportionate share of the Master Fund III’s and Master Fund II’s financial
assets at fair value through profit or loss to the Company’s financial assets at fair value through profit or loss:
Financial assets at fair value through profit or loss
Add: Other net current assets
Master Fund III¹
US$
189,698,427
2,769,762
31 December 2023
Master Fund II²
US$
28,053,512
(55,361)
Total Company
US$
217,751,939
2,714,401
Total financial assets at fair value through profit or loss
192,468,189
27,998,151
220,466,340
Financial assets at fair value through profit or loss
Add: Other net current assets
Master Fund III¹
US$
196,833,730
6,804,209
31 December 2022
Master Fund II²
US$
30,535,043
811,473
Total Company
US$
227,368,773
7,615,682
Total financial assets at fair value through profit or loss
203,637,939
31,346,516
234,984,455
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
66 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Look-through financial information: Master Funds’ profit or loss movements
The Company’s proportionate share of the unrealised losses on investments in the year comprises the following movements
within the underlying investments:
Net unrealised losses on investments at the beginning of the
year
Investment income
Income distributions declared by Master Fund II
Unrealised losses on financial assets at fair value through profit
or loss
Net loss on derivative financial instruments and foreign
exchange
Other income
Expenses
Income distributions declared during the year
Net unrealised losses on investments at the end of the year
Net unrealised losses on investments at the beginning of the
year
Investment income
Income distributions declared by Master Fund II
Unrealised losses on financial assets at fair value through profit
or loss
Net gains on derivative financial instruments and foreign
exchange
Other income
Expenses
Income distributions declared during the year
Net unrealised losses on investments at the end of the year
1 January 2023 to 31 December 2023
Master Fund III¹
US$
Master Fund II²
US$
Total Company
US$
(150,131,786)
(23,256,249)
(173,388,035)
366,665
45,125,393
3,291,631
-
3,658,296
45,125,393
(18,455,519)
1,386,003
(17,069,516)
(30,137)
(208,153)
(238,290)
5,736
(283,659)
(42,596,293)
77,939
(271,879)
(7,253,637)
83,675
(555,538)
(49,849,930)
(165,999,600)
(26,234,345)
(192,233,945)
1 January 2022 to 31 December 2022
Master Fund III¹
US$
Master Fund II²
US$
Total Company
US$
(101,834,804)
(15,491,522)
(117,326,326)
-
43,210,172
8,596,828
-
8,596,828
43,210,172
(42,452,889)
(9,173,928)
(51,626,817)
5,218
922,785
928,003
5,183
(253,432)
(48,811,234)
70,713
(340,617)
(7,840,508)
75,896
(594,049)
(56,651,742)
(150,131,786)
(23,256,249)
(173,388,035)
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
67 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
IFRS 13 requires that a fair value hierarchy be established that prioritises the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy under IFRS 13 are set as follows:
•
Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
•
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes instruments valued using: quoted market prices in active
markets for similar instruments; quoted for identical or similar instruments in markets that are considered less than active;
or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.
•
Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the
lowest level input that is significant to the fair value measurement. 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 requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant judgement. Observable data is considered to be that
market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent
sources that are actively involved in the relevant market.
The following table analyses within the fair value hierarchy the Company’s financial assets (by class, excluding cash and
cash equivalents, prepayments, distribution receivable, dividends payable and other payables) measured at fair value:
Assets:
Financial assets at fair value through profit or
loss
Total
31 December 2023
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
-
-
-
-
220,466,340
220,466,340
220,466,340
220,466,340
31 December 2022
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
Assets:
Financial assets at fair value through profit or
loss
Total
-
-
-
-
234,984,455
234,984,455
234,984,455
234,984,455
The investments in the Master Fund III and Master Fund II, which are fair valued at each reporting date, have been classified within Level 3
as they are not traded and contain unobservable inputs.
68 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The following table presents the movement in Level 3 instruments:
Opening Balance
Return of capital from Master Funds
Drawdown paid to Master Funds
Movement in net unrealised loss during the year
Closing Balance
1 January 2023 to
31 December 2023
US$
1 January 2022 to
31 December 2022
US$
234,984,455
(370,269)
4,698,064
(18,845,910)
220,466,340
311,699,203
(20,653,039)
-
(56,061,709)
234,984,455
Transfers between Level 1, 2 and 3
There have been no transfers between levels during the period ended 31 December 2023 or for the year ended 31
December 2022. Transfers between levels of the fair value hierarchy are recognised as at the end of the reporting period
during which the change has occurred.
Look-through financial information: Master Fund III and Master Fund II fair value hierarchy information
On a look-through basis, the following table analyses within the fair value hierarchy the Company’s proportionate share of the
Master Fund III’s and the Master Fund II’s financial assets and derivatives (by class, excluding cash and cash equivalents,
other receivables and prepayments, distribution payable, carried interest payable and trade and other payables) measured at
fair value:
Master Fund III¹
Financial assets at fair value through profit or
loss
Total
Master Fund III¹
Financial assets at fair value through profit or
loss
Total
Master Fund II²
Financial assets at fair value through profit or
loss
Derivatives at fair value through profit or loss
Total
31 December 2023
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
-
-
3,446,225
3,446,225
186,252,202
186,252,202
189,698,427
189,698,427
31 December 2022
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
-
-
3,059,201
3,059,201
193,774,529
193,774,529
196,833,730
196,833,730
Level 1
US$
Level 2
US$
Level 3
US$
31 December 2023
Total
US$
-
-
-
612,985
27,440,527
28,053,512
(346,858)
266,127
-
27,440,527
(346,858)
27,706,654
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
69 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
31 December 2022
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
Master Fund II²
Financial assets at fair value through profit or
loss
Derivatives at fair value through profit or loss
Total
-
-
-
471,980
30,063,063
30,535,043
(535,493)
(63,513)
-
30,063,063
(535,493)
29,999,550
The following table summarises the valuation methodologies used for the Company’s investments categorised in Level 3 as
at 31 December 2023:
Security
Master Fund III¹
Master Fund II²
Fair Value US$
methodology Unobservable inputs
Ranges
Valuation
192,468,189
27,998,151
220,466,340
NAV
NAV
Zero % discount
Zero % discount
N/A
N/A
The following table summarises the valuation methodologies used for the Company’s investments categorised in Level 3 as
at 31 December 2022:
Security
Master Fund III¹
Master Fund II²
Fair Value US$
methodology Unobservable inputs
Ranges
Valuation
203,637,939
31,346,516
234,984,455
NAV
NAV
Zero % discount
Zero % discount
N/A
N/A
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
70 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Look-through financial information: Master Funds’ Level 3 information
The Master Funds have engaged an independent third party to provide valuations for its CLO investments. The following
table summarises, in the Company’s opinion, the valuation methodologies used by the independent third party to value the
Master Funds' investments categorised in Level 3 as at 31 December 2023:
Fair Value
US$
Unobservable
inputs
Ranges
Average
Asset Class
Master Fund III ¹
Limited Partnerships
Master Fund II
173,265,587
Zero % discount
Wollemi
12,986,615
186,252,202
Zero % discount
N/A
N/A
N/A
N/A
Sensitivity to
changes in significant
unobservable inputs
25% increase/decrease
will have a fair value impact
of +/- US$43,316,397
25% increase/decrease
will have a fair value impact
of +/- US$3,246,654
Fair Value
US$
Unobservable
inputs
Ranges
Average
Sensitivity to
changes in significant
unobservable inputs
16,181,402
Prices provided by a
third party agent
US$0.100-
US$0.8967
US$0.4718
214,869
Prices provided by
a third party agent
EUR0.8092-
EUR0.8092
EUR0.8092
25% increase/decrease
will have a fair value impact
of +/- US$4,045,351
25% increase/decrease
will have a fair value impact
of +/- US$53,717
Asset Class
Master Fund II ²
CLOs
United States of
America
Europe
Limited Partnerships
Wollemi
11,044,256
Zero % discount
N/A
N/A
10% increase/decrease
will have a fair value impact
of +/- US$1,104,426
27,440,527
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
71 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The Master Fund II has engaged an independent third party to provide valuations for their CLO investments. The following
table summarises, in the Company’s opinion, the valuation methodologies used by the independent third party to value the
Master Fund II’s investments categorised in Level 3 as at 31 December 2022:
Fair Value
US$
Unobservable
inputs
Ranges
Average
193,774,529
193,774,529
Zero % discount
N/A
N/A
Fair Value
US$
Unobservable
inputs
Ranges
Average
18,287,159
327,287
Prices provided by
a third party agent
US$0.0001 -
US$0.9866
US$0.9866
Asset Class
Master Fund III ¹
Limited Partnerships
Master Fund II
Asset Class
Master Fund II ²
CLOs
United States of
America
Europe
Limited Partnerships
Wollemi
11,448,617
Zero % discount
N/A
N/A
30,063,063
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only.
2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only.
Sensitivity to
changes in significant
unobservable inputs
25% increase/decrease
will have a fair value impact
of +/- US$48,443,632
Sensitivity to
changes in significant
unobservable inputs
25% increase/decrease
will have a fair value impact
of +/- US$4,571,790
25% increase/decrease
will have a fair value impact
of +/- US$81,822
25% increase/decrease
will have a fair value impact
of +/- US$2,862,154
72 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
7. INTEREST INCOME
Interest income on financial assets carried at amortised cost:
Cash and cash equivalents
8. RELATED PARTIES AND OTHER KEY CONTACTS
For the year ended
31 December 2023
For the year ended
31 December 2022
US$
US$
1,117,468
1,117,468
235,886
235,886
Transactions with Investment Adviser and Investment Portfolio Investor
Investment Adviser
Fair Oaks Capital Limited (the “Investment Adviser”) is entitled to receive an investment advisory fee from the Company of
1% per annum of the NAV of the Company, in accordance with the Amended and Restated Investment Advisory Agreement
dated 9 March 2017 (the “Investment Advisory Agreement”). The investment advisory fee is calculated and payable on the
last business day of each month or on the date of termination of the Investment Advisory agreement. The base investment
advisory fee will be reduced to take into account any fees received by the Investment Adviser incurred by the Company in
respect of its investments in the Master Fund III and Master Fund II (taking into account any rebates of such management
fees to the Company) in respect of the same relevant period.
The net investment advisory fee during the period is as follows:
Company investment advisory fee
Less: Master fund II rebate
Less: Master fund III rebate
Net investment advisory fee
For the year ended
31 December 2023
US$
1,832,652
(1,490,896)
(130,318)
211,438
For the year ended
31 December 2022
US$
2,282,988
(2,046,813)
(96,320)
139,855
In circumstances where, as at the date the Net Asset Value per share of the 2021 Shares with respect to the last calendar
month of a calendar quarter (the “Quarter End 2021 NAV”) is published, the price of the 2021 Shares, adjusted for any
dividends declared if required, traded at close in the secondary market below their then-prevailing Quarter End 2021 NAV,
the Investment Adviser agrees to reinvest and/or procure the reinvestment by an Associate of it of:
(a) 25 percent of the fees which it shall receive with respect to that quarter from the Company pursuant to the agreement
which is attributable to the Net Asset Value of the 2021 Shares and
(b) 25 percent of the management fee which the General Partner shall receive with respect to that quarter from Master Fund
II and Master Fund III which is attributable to the Net Asset Value of the 2021 Shares by, in each case, using its best
endeavours to purchase or procure the purchase of 2021 Shares in the Company in the secondary market.
The obligation to purchase or procure the purchase of such 2021 Shares shall be fulfilled by the Investment Adviser by no
later than one month after the end of such calendar quarter. The Investment Adviser will have no obligation to reinvest and/
or procure the reinvestment of fees it receives with respect to a calendar quarter in circumstances where:
(i) the 2021 Shares did not trade at close in the secondary market at a discount to their then-prevailing Quarter End 2021
NAV; or
(ii) where the 2021 Shares did trade at close in the secondary market at a discount to their then-prevailing Quarter End 2021
NAV and it is unable to purchase or procure the purchase of 2021 Shares in the secondary market at a discount to their then-
prevailing Quarter End 2021 NAV despite having used its best endeavours to do so; or
(iii) the Master Fund III Commitment Period has already expired, and, in each case, the Investment Adviser shall retain all
fees it receives for such quarter.
73 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED)
Transactions with Investment Adviser and Investment Portfolio Investor (continued)
Investment Adviser (continued)
In circumstances where, as at the date of the Net Asset Value per share of the Realisation Shares with respect to the last
calendar month of a calendar quarter (the “Quarter End Realisation NAV”) is published, the price of the Realisation Shares,
adjusted for any dividends declared if required, traded at close in the secondary market below their then-prevailing Quarter
End Realisation NAV, the Investment Adviser agrees to reinvest and/or procure the reinvestment by an Associate of it of:
(a) 25 percent of the fees which is received with respect to that quarter from the Company pursuant to the agreement which
is attributable to the Net Asset Value of the Realisation Shares and
(b) 25 percent of the Master Fund II Management Fee which the General Partner shall receive in respect to that quarter from
Master Fund II which is attributable to the Net Asset Value of the Realisation Shares by, in each case, using its best
endeavours to purchase or procure the purchase of Realisation Shares in the secondary market.
The obligation to purchase or procure the purchase of Realisation Shares shall be fulfilled by the Investment Adviser by no
later than one month after the end of such calendar quarter.
The Investment Adviser will have no obligation to reinvest and/or procure the reinvestment of fees it receives with respect to
a calendar quarter in circumstances where either:
(i) the Realisation Shares did not trade at close in the secondary market at a discount to their then-prevailing Quarter End
Realisation NAV; or
(ii) where the Realisation Shares did trade at close in the secondary market at a discount to their then-prevailing Quarter End
Realisation NAV and it is unable to purchase or procure the purchase of Realisation Shares in the secondary market at a
discount to their then-prevailing Quarter End Realisation NAV despite having used its best endeavours to do so and, in either
case, the Investment Adviser shall retain all fees it receives for such quarter.
The Investment Advisory Agreement can be terminated by either party giving not less than 6 months written notice.
Fair Oaks CLOs
At 31 December 2023, Wollemi's investments in FOAKS 1 CLO, FOAKS 2 CLO, FOAKS 3 CLO, FOAKS 4 CLO Limited and
FOLF V are valued at €20,783,972, €24,035,934, €23,901,852, €30,126,945 and €13,000,000 respectively. At 31 December
2022, Wollemi had investments in FOAKS 1 CLO, FOAKS 2 CLO, FOAKS 3 CLO and FOAKS 4 CLO Limited valued at
€23,023,572, €28,316,443, €25,494,629 and €32,102,608 respectively. The Investment Adviser to the Company also acts as
collateral manager to the Fair Oaks CLOs.
Founder Partners
The Master Fund III and Master Fund II also pay the Founder Partner VI and Founder Partner II a carried interest equal to 15
percent of cash available to be distributed (after payment of expenses and management fees) after Limited Partners have
received a Preferred Return. The threshold calculation of the Preferred Return will be based solely on distributions and not on
NAV calculations so the Master Fund III and Master Fund II will not pay any carried interest until their investors have realised
the amounts drawn down for investments and met their Preferred Returns. At 31 December 2023, US$Nil (31 December
2022: US$Nil) carried interest was due at Master Fund II level in respect of the Company’s limited partnership interests.
74 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED)
Other Material Contracts
Administrator
Sanne Fund Services (Guernsey) Limited, (the “Administrator”) is entitled to receive a time-based fee quarterly in arrears for
all Company Secretarial services. The Administrator is also entitled to an annual fee of US$36,599 (31 December 2022:
US$33,888), payable quarterly in arrears for Administration and Accounting services. The Administrator is also entitled to an
annual fee of £629 (31 December 2022: £582) in relation to FATCA reporting and acting as Responsible Officer.
Master Funds
The Company paid audit fees to KPMG on behalf of the Master Funds. At 31 December 2023 US$120,488 (31 December
2022: US$ 94,520) was receivable from the Master Funds (note 12).
Custodian
BNP Paribas Securities Services S.C.A., Guernsey Branch (the “Custodian”) waived all fees on the basis that all assets are
invested into the Master Fund II.
Directors’ Fees
The Company’s Board of Directors are entitled to a fee in remuneration for their services as Directors at a rate payable of
£45,000 each per annum (31 December 2022: £45,000).
The overall charge for the above-mentioned fees for the Company and the amounts due are as follows:
CHARGE FOR THE PERIOD
Investment adviser fee
Administration fee
Directors’ fees and expenses
OUTSTANDING FEES
Investment adviser fee
Administration fee
Shares held by related parties
For the year ended
31 December 2023
US$
For the year ended
31 December 2022
US$
211,438
123,061
218,274
18,633
37,942
139,855
127,533
209,522
16,939
21,779
The shareholdings of the Directors’ in the Company were as follows:
31 December 2023
31 December 2022
No. of 2021
Shares
Percentage
No. of 2021
Shares
Percentage
Name
Jon Bridel*
Claudio Albanese (Resigned 31 December
2023)
40,000
9,697
0.01%
0.00%
40,000
9,697
0.01%
0.00%
*A person closely associated with Jon Bridel is the registered holder of these shares.
As at 31 December 2023, the Investment Adviser, the General Partner and principals of the Investment Adviser and General
Partner held an aggregate of 5,331,980 2021 Shares (31 December 2022: 4,548,868 2021 Shares) and 92,086 Realisation
Shares (31 December 2022: 30,599 Realisation Shares), which is 0.91% (31 December 2022: 1.13%%) of the issued 2021
Share capital and 0.20% (31 December 2022: 0.06%) of the issued Realisation Share capital respectively.
75 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
9. TAX STATUS
The Company is exempt from Guernsey income tax and is charged an annual exemption fee of £1,200 under The Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989.
10. SHARE CAPITAL
The Company’s 2021 Shares and Realisation Shares are classified as equity. Incremental costs directly attributable to the
issue of shares are recognised as a deduction in equity and are charged to the share capital account, including the initial set
up costs.
During April 2021, of the 468,378,360 original 2017 Shares in issue, 62,562,883 2017 Shares were re-designated as
Realisation Shares and 405,815,477 2017 Shares (including 650,000 shares held in Treasury) were re-designated as 2021
Shares.
On 22 April 2021, 405,815,477 2021 Shares and 62,562,883 Realisation Shares were admitted to trading on the Specialist
Fund Segment of the Main Market of the London Stock Exchange.
On 25 August 2022, the Company announced that it will return US$4,000,000 (equivalent to 6.3936 US cents per share) on
12 September 2022 (the “Redemption Date”) by way of a compulsory partial redemption of Realisation Shares (the “First
Redemption”).
The First Redemption was effected at 57.27 cents per share, being the NAV per Realisation Share as at 29 July 2022 of
59.77 cents per share less the dividend for the period to 30 June 2022 of 2.50 cents per share. The First Redemption was
effected pro rata to holdings of Realisation Shares on the register at the close of business on the Redemption Record Date,
being 12 September 2022. At the time of the announcement, the Company had 62,562,883 Realisation Shares in issue of
which none are held in treasury. On this basis 11.16 percent. of each registered shareholding was redeemed on the
Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record Date.
On 21 June 2023, the Company announced that it will return US$1,155,020 (equivalent to 2.078 US cents per share) on 5
July 2023 (the “Redemption Date”) by way of a compulsory partial redemption of Realisation Shares (the “Second
Redemption”).
The Second Redemption was effected pro rata to holdings of Realisation Shares on the register at the close of business on
the Redemption Record Date, being 5 July 2023. At the time of the announcement, the Company had 55,578,441 Realisation
Shares in issue of which none are held in treasury. On this basis 3.59 percent. of each registered shareholding was
redeemed on the Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record
Date.
On 7 December 2023, the Company announced that it will return US$2,099,990 on 20 December 2023 (the “Redemption
Date”) by way of a compulsory partial redemption of Realisation Shares (the “Third Redemption”).
The Third Redemption was effected at 57.15 cents per share, being the NAV per Realisation Share as at 31 October 2023 of
59.15 cents per share less the dividend for the period to 30 September 2023 of 2.00 cents per share. The Third Redemption
was effected pro rata to holdings of Realisation Shares on the register at the close of business on the Redemption Record
Date, being 20 December 2023. At the time of the announcement, the Company had 62,562,883 Realisation Shares in issue
of which none are held in treasury. On this basis 6.86 percent. of each registered shareholding was redeemed on the
Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record Date.
Following the Distribution Policy announcement on 20 September 2022 and the general authority granted by shareholders of
the Company on 14 June 2022 to make market purchases of its own Ordinary Shares, the Company went on to repurchase
20,699,431 2021 Shares during the period to 31 December 2023 (31 December 2022 2,455,977 2021 Shares), to be held in
treasury, at average cost of US$0.5057 (31 December 2022 US$0.4848) per Share. At 31 December 2023, the Company
held 23,805,408 (31 December 2022 3,105,977) Ordinary Shares in treasury.
76 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
10. SHARE CAPITAL (CONTINUED)
The authorised share capital of the Company is represented by an unlimited number of ordinary shares of nil par value and
have the following rights:
(a)
Dividends: Shareholders of a particular class or tranche are entitled to receive, and participate in, any dividends or other
distributions relating to the assets attributable to the relevant class or tranche which are resolved to be distributed in
respect of any accounting period or other period, provided that no calls or other sums due by them to the Company are
outstanding.
(b)
Winding Up: On a winding up, the shareholders of a particular class or tranche shall be entitled to the surplus assets
attributable to that class or tranche remaining after payment of all the creditors of the Company.
(c) Voting: Subject to any rights or restrictions attached to any class or tranche of shares, at a general meeting of the
Company, on a show of hands, every holder of voting shares present in person or by proxy and entitled to vote shall have
one vote, and on a poll every holder of voting shares present in person or by proxy shall have one vote for each share
held by him, but this entitlement shall be subject to the conditions with respect to any special voting powers or restrictions
for the time being attached to any class or tranche of shares which may be subject to special conditions. Refer to the
Memorandum and Articles of Incorporation for further details.
(d) Buyback: The Company may acquire its own shares (including any redeemable shares). Any shares so acquired by the
Company may be cancelled or held as treasury shares provided that the number of shares of any class held as treasury
shares must not at any time exceed ten per cent. (or such other percentage as may be prescribed from time to time by the
States of Guernsey Committee for Economic Development) of the total number of issued shares of that class. Any shares
acquired in excess of this limit shall be treated as cancelled.
Issued share capital
2021 Shares
Share capital at the beginning of the year
Share buy-backs
Share capital at the end of the year
Issued share capital
Realisation Shares
Shares
31 December 2023
US$
Shares
31 December 2022
US$
402,709,500
(20,699,431)
382,010,069
383,148,853
(10,468,165)
372,680,688
405,165,477
(2,455,977)
402,709,500
384,339,570
(1,190,717)
383,148,853
Share capital at the beginning of the year
Realisation Share redemptions paid during the
year
Share capital at the end of the year
Shares
55,578,441
31 December 2023
US$
55,251,707
Shares
62,562,883
31 December 2022
US$
59,251,697
(5,672,083)
49,906,358
(3,255,010)
51,996,697
(6,984,442)
55,578,441
(3,999,990)
55,251,707
The total number of 2021 Shares in issue, as at 31 December 2023 was 405,815,477 (31 December 2022: 405,815,477
shares), of which 23,805,408 2021 Shares were held in treasury (31 December 2022: 3,105,977 shares), and the total
number of 2021 shares in issue excluding treasury shares were 382,010,069 (31 December 2022: 402,709,500 shares).
The total number of Realisation Shares in issue, as at 31 December 2023 was 49,906,358 (31 December 2022: 55,578,441),
of which no shares were held in treasury (31 December 2022: none).
At 31 December 2023, the Company has 431,916,427 (31 December 2022: 458,287,941) Shares (excluding treasury
shares).
77 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
11. EARNINGS PER SHARE
For the year ended
31 December 2023
2021 Shares Realisation Shares
US$
US$
Weighted average number of shares
Profit/(loss) for the year
Basic and diluted earnings/(loss) per share
391,034,588
26,794,126
0.0685
54,488,077
4,190,991
0.0769
2021 Shares
US$
404,951,213
(658,551)
(0.0016)
For the year ended
31 December 2022
Realisation Shares
US$
60,457,983
(28,714)
(0.0005)
For the year ended 31 December 2023, profits for the year have been allocated 86.47% to 2021 Shares and 13.53% to
Realisation Shares (31 December 2022 95.82% to 2021 Shares and 4.18% Realisation Shares).
The weighted average number of shares as at 31 December 2023 and 31 December 2022 is based on the number of 2021
Shares and Realisation Shares in issue during the period under review as detailed in note 10.
12. OTHER RECEIVABLES AND PREPAYMENTS
Receivable from related parties (note 8)
Income distribution receivable
Prepayments
13. TRADE AND OTHER PAYABLES
Investment advisory fees payable
Audit fees payable
Registrar's fees payable
Sundry expenses payable
Administration fees payable
FOIL Realisation - share redemption - service fee payable
FOIL 2021 - share buyback payable
FOIL Realisation - share redemption accrual
31 December 2023
US$
120,488
452,434
20,524
31 December 2022
US$
94,520
-
23,469
593,446
117,989
31 December 2023
US$
18,633
45,795
33,144
13,555
37,942
6,651
33,997
2,099,990
31 December 2022
US$
16,939
28,281
-
45,546
21,779
-
-
-
2,289,707
112,545
78 .
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2023
14. CONTINGENT LIABILITIES AND COMMITMENTS
The Company entered into a Subscription Agreement with Master Fund III and agreed to become a Limited Partner and
made a commitment to Master Fund III of an initial amount of US$264,000,000 that was further increased as at 31 December
2023 by US$25,500,000 (31 December 2022:
total commitment of US$264,000,000) of which US$268,573,683 (31
December 2022: US$263,875,619) had been called.
The Company entered into a Subscription Agreement with Master Fund II and agreed to become a Limited Partner and made
a commitment to Master Fund II of US$452,346,532 (31 December 2022: US$452,346,532) of which US$432,982,362 (31
December 2022: US$432,982,362) had been called. With effect
the Company’s 2021 Shares
commitment to Master Fund II is on an indirect basis through the Master Fund III. The Master Fund II commitment period
ended on 12 June 2021.
from 22 April 2021,
At 31 December 2023 and 31 December 2022, the Company had no other outstanding commitments.
15. SUBSEQUENT EVENTS
On 1 February 2024, the Company announced that following the announcement of the NAV as at 31 December 2023, Fair
Oaks Income Fund (GP) had purchased 35,000 2021 Shares in the secondary market.
On 22 February 2024, the Company declared an interim dividend of 2.00 US cents per 2021 Share and 2.00 US cents per
Realisation Share in respect of the quarter ended 31 December 2023. The ex-dividend date was 29 February 2024 and the
dividend was paid on 2 April 2024.
On 29 February 2024, the Company announced that it had issued 848,660 2021 Shares from treasury. The 2021 Shares was
issued at a price of U$0.5775 per share.
Pursuant to the general authority granted by shareholders of the Company on 14 June 2022 to make market purchases of its
own Ordinary Shares, the Company went on to repurchase 531,113 2021 Shares in the post year end period, to be held in
treasury, at average cost of US$0.5473 per Share.
There were no other significant events since the year end which would require revision of the figures or disclosures in the
Financial Statements.
79 .
ADDITIONAL INFORMATION
Portfolio Statement (unaudited)
At 31 December 2023
Security
AIMCO 2017-A SUB
ALLEG 2017-2X SUB
ALLEG 2021-1X SUB
ARES 2015-35R
AWPT 2017-6X SUB
FOAKS 1X M
FOAKS 1X SUB
FOAKS 1X Z
FOAKS 2X M
FOAKS 2X SUB
FOAKS 2X Z
FOAKS 3X M
FOAKS 3X SUB
FOAKS 3X Z
FOAKS 4X M
FOAKS 4X SUB
FOAKS 4X Z
FOLF V
HLM 13X-2018 SUB
MARNR 2017-4 SUB
POST 2018-1X SUB
ROCKT 2021-2X SUB
SHACK 2018-12 SUB
Signal Peak CLO 1, Ltd.
Signal Peak CLO 2, LLC
WELF 2018-1X SUB
WELF 2021-2X SUB
CLO Equity
Instrument
Par Value Master
Funds¹
Valuation
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Fee Notes
Subordinated Notes
Subordinated Fee Notes
Subordinated Fee Notes
Subordinated Notes
Subordinated Fee Notes
Subordinated Fee Notes
Subordinated Notes
Subordinated Fee Notes
Subordinated Fee Notes
Subordinated Notes
Subordinated Fee Notes
CLO Warehouse
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
Subordinated Notes
US$18,673,554
US$27,496,601
US$18,752,165
US$17,928,818
US$20,721,577
€717,551
€20,091,425
€615,044
€717,551
€33,724,893
€615,044
€717,551
€25,114,282
€615,044
€717,551
€20,091,425
€615,044
€9,328,162
US$17,894,340
US$25,203,938
US$27,088,031
US$16,894,463
US$20,687,098
US$4,538,036
US$4,691,003
US$19,911,332
US$19,997,528
53.00%
28.00%
66.00%
26.00%
10.00%
0.00%
70.14%
133.58%
0.00%
48.35%
152.84%
16.00%
63.65%
170.86%
0.00%
83.60%
207.96%
100.00%
26.00%
32.00%
40.00%
72.00%
37.00%
45.00%
13.50%
20.00%
54.00%
1Shows the Company’s 2021 Shares proportionate share, via the Master Fund III, in the Master Fund II at 59.36% (31 December 2022: 59.30%) and the Company’s direct holding in the Master Fund II at 9.59%. 2021 Shares and
Realisation Shares proportionate share together at 68.96% (31 December 2022: 68.89%). Also includes Master Fund III's direct investments, Master Fund II’s 89.43% share in Wollemi and its 13.38% interest in Cycad.
80 .
ADDITIONAL INFORMATION
Portfolio Statement (unaudited)
At 31 December 2023
Security
APID 2018-18A F
DRSLF 2017-49A F
DRSLF 2017-53A F
EGLXY 2018-6X F
FOAKS 2X ER
FOAKS 4X F
HARVT 11X FR
HLM 13X-2018 F
MDPK 2016-20A FR
OAKCL 2021-2A E
OCT39 2018-3A F
OHECP 2015-4X FR
SYMP 2018-19A F
CLO Mezzanine
Instrument
Par Value Master
Funds¹
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class F Notes
Class E Notes
Class F Notes
Class F Notes
Class F Notes
US$2,758,280
US$3,172,022
US$3,447,850
€2,930,672
€1,431,404
€3,659,510
€1,723,925
US$3,956,408
US$2,758,280
US$1,908,539
US$6,206,129
€1,750,818
US$3,792,635
Valuation
84.83%
82.15%
80.78%
84.42%
93.99%
96.78%
80.92%
86.36%
89.67%
102.52%
85.36%
85.99%
67.04%
1Shows the Company’s 2021 Shares proportionate share, via the Master Fund III, in the Master Fund II at 59.36% (31 December 2022: 59.30%) and the Company’s direct holding in the Master Fund II at 9.59%. 2021 Shares and
Realisation Shares proportionate share together at 68.96% (31 December 2022: 68.89%). Also includes Master Fund III's direct investments, Master Fund II’s 89.43% share in Wollemi and its 13.38% interest in Cycad.
81 .
ADDITIONAL INFORMATION
Management and Administration
Directors
Richard Burwood (Independent non-executive Chairman) (appointed 27 September 2023)
Jon Bridel (Independent non-executive Director)
Fionnuala Carvill (Independent non-executive Director)
Claudio Albanese (Former Independent non-executive Chairman) (resigned 31 December 2023)
Administrator and Secretary
Sanne Fund Services (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue St Sampson
Guernsey
GY2 4LH
Legal Advisers in United Kingdom
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 1WR
Registered Office and Business Address
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser
Fair Oaks Capital Limited
1 Old Queen Street
London
SW1H 9JA
Legal Advisers in Guernsey
Carey Olsen (Guernsey) LLP
Carey House
Les Banques
St Peter Port
Guernsey
GY1 4BZ
Custodian and Principal Bankers
BNP Paribas Securities Services S.C.A.
BNP Paribas House
St Julian’s Avenue
St Peter Port
Guernsey
GY1 1WA
Joint Bookrunners, Joint Brokers and
Joint Financial Advisers
Deutsche Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Liberum Capital Limited
Ropemaker Place, Level 12
Ropemaker Street
London
EC2Y 9LY
82 .
ADDITIONAL INFORMATION
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report
• Total NAV return
Total NAV return is a calculation showing how the NAV per share has performed over a period of time, taking into
account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on an
accumulative basis from inception of the Company, at the prevailing NAV on the last day of the month that the shares
first trade ex-dividend. The performance is evaluated on an original shareholding of 1,000 shares on inception of the
Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between
investment funds where the dividend paid may differ.
2021 Shares
Opening NAV per 2021 share
Opening accumulated number of 2021 Shares*
Opening NAV valuation of shares
Dividends paid during the period
Dividends converted to shares**
Closing NAV per 2021 share
Closing accumulated number of 2021 Shares*
(d = a + c)
Closing NAV valuation of shares
NAV valuation of shares return (f = e – b)
Total NAV return (g = (f / b) x 100)
Realisation Shares
Opening NAV per Realisation Share
Opening accumulated number of Realisation shares*
Opening NAV valuation of shares
Dividends paid during the period
Dividends converted to shares**
Closing NAV per Realisation share
Closing accumulated number of Realisation Shares*
Closing NAV valuation of shares
NAV valuation of shares return (f = e – b)
Total NAV return (g = (f / b) x 100)
*with dividends reinvested since inception (12 June 2014).
**converted to 2021 Shares at the prevailing month end NAV ex-dividend for all dividends paid during the period.
For the year ended
31 December 2023
For the year ended
31 December 2022
US$0.5721
2,854.5 shares
US$1,633.1
US$0.0800
418.1 shares
US$0.6682
2,444.4 shares
US$1,633.4
US$0.0950
385.4 shares
US$0.5638
US$0.5721
3,272.6 shares
2,854.5 shares
US$1,845.1
US$1,633.1
US$212.0782
(US$14.4)
12.98%
(0.90%)
For the year ended
31 December 2023
For the year ended
31 December 2022
US$0.5747
2,855.3 shares
US$1,641.0
US$0.0800
412.9 shares
US$0.5715
3,268.3 shares
US$1,868.0
US$227.0
US$0.6679
2,444.7 shares
US$1,632.8
US$0.0950
410.6 shares
US$0.5747
2,885.3 shares
US$1,641.0
US$8.2000
13.82%
0.50%
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
83 .
ADDITIONAL INFORMATION
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report
• Total share price return
Total share price return is a calculation showing how the share price per share has performed over a period of time,
taking into account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on
an accumulative basis from inception of the Company, at the prevailing share price on the last day of the month that the
shares first trade ex-dividend. The performance is evaluated on a original shareholding of 1,000 shares on inception of
the Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between
investment funds where the dividend paid may differ.
2021 Shares
Opening share price per 2021 share
Opening accumulated number of 2021 Shares*
Opening shares price valuation of shares
Dividends paid during the period
Dividends converted to shares**
Closing share price per 2021 share
Closing accumulated number of 2021 Shares* (d = a +
Closing NAV valuation of shares
NAV valuation of shares return (f = e – b)
Total NAV return (g = (f / b) x 100)
Realisation Shares
Opening share price per Realisation share
Opening accumulated number of Realisation Shares*
Opening NAV valuation of shares
Dividends paid during the period
Dividends converted to shares**
Closing share price per Realisation share
Closing accumulated number of Realisation share*
Closing share price valuation of shares
NAV valuation of shares return (f = e – b)
Total share price return (g = (f / b) x 100)
*with dividends reinvested since inception (12 June 2014).
**converted to 2021 Shares at the prevailing month end NAV ex-dividend for all dividends paid during the period.
For the year ended
31 December 2023
For the year ended
31 December 2022
US$0.4900
2,876.6 shares
US$1,409.6
US$0.0800
479.0 shares
US$0.5500
3,355.6 shares
US$1,845.6
US$436.0
US$0.6225
2,422.0 shares
US$1,507.7
US$0.0950
454.6 shares
US$0.4900
2,876.6 shares
US$1,409.6
US$(98.1)
30.94%
(6.50%)
For the year ended
31 December 2023
For the year ended
31 December 2022
US$0.5650
2,810.0 shares
US$1,587.7
US$0.0800
423.8 shares
US$0.5700
3,233.8 shares
US$1,843.2
US$255.5
US$0.7000
2,409.6 shares
US$1,686.7
US$0.0950
392.9 shares
US$0.5650
2,810.0 shares
US$1,587.7
US$(99.1)
16.10%
(5.90%)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
84 .
ADDITIONAL INFORMATION
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report
• 2021 and Realisation Share (discount)/premium to NAV
2021 and Realisation Share (discount)/premium to NAV is the amount by which the 2021 and Realisation Share price is
lower/ higher than the NAV per 2021 and Realisation Share, expressed as a percentage of the NAV per 2021 and
Realisation Share, and provides a measure of the Company’s share price relative to the NAV.
• Ongoing charges ratio (“OCR”)
The ongoing charges ratio of an investment company is the annual percentage reduction in shareholder returns as a
result of recurring operational expenditure. Ongoing charges are classified as those expenses which are likely to recur
in the foreseeable future, and which relate to the operation of the company, excluding investment transaction costs,
gains or losses on investments and performance fees. In accordance with the AIC guidance, the proportionate charges
for the period are also incorporated from investments in other funds. As such charges for:
1.
2.
2021 Shares – from the Master Fund III a weighted average percentage for the year of 99.33% (31 December 2022:
99.25%), the Master Fund II at a weighted average percentage for the year of 59.37% (31 December 2022:
61.75%), Wollemi at a weighted average percentage for the year of 63.18% (31 December 2022: 61.75%), and
Cycad Investments LP at a weighted average percentage for the period of 9.45% (31 December 2022: 9.24%) are
included.
Realisation Shares – from the Master Fund II a weighted average percentage for the year of 9.59% (31 December
2022: 9.59%), Wollemi at a weighted average percentage for the year of 8.58% (31 December 2022: 9.59%) and
Cycad Investments LP at a weighted average percentage for the year of 1.28% (31 December 2022: 1.44%) are
included.
Performance fees or carried interest from the underlying funds are not included. The OCR is calculated as the total
ongoing charges for a period divided by the average net asset value over that year.
2021 Shares
For the year ended 31 December 2023
Total expenses
Non-recurring expenses
Total ongoing expenses
Average NAV
Ongoing charges ratio (using AIC methodology)
Master Funds¹
US$
2,088,550
-
2,088,550
Company
US$
1,016,006
-
1,016,006
227,421,772
0.45%
Total
US$
3,104,555
-
3,104,555
227,421,772
1.37%
Realisation Shares
For the year ended 31 December 2023
Total expenses
Non-recurring expenses
Total ongoing expenses
Average NAV
Company
US$
132,711
-
132,711
31,997,670
Master Funds¹
US$
288,497
-
288,497
Ongoing charges ratio (using AIC methodology)
0.41%
1 "Master Funds” includes FOMC III LP, FOIF II LP, Wollemi Fund and Cycad Investments LP.
Total
US$
421,208
-
421,208
31,997,670
1.32%
85 .
ADDITIONAL INFORMATION
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report
Ongoing charges ratio (“OCR”) continued
2021 Shares
Total expenses
Non-recurring expenses
Total ongoing expenses
Average NAV
Ongoing charges ratio (using AIC methodology)
For the year ended 31 December 2022
Company
US$
Master Funds¹
US$
Total
US$
868,300
(16,469)
851,831
248,414,527
0.34%
2,579,797
(3,710)
2,576,087
3,448,097
(20,179)
3,427,918
248,414,527
1.38%
Realisation Shares
For the year ended 31 December 2022
Total expenses
Non-recurring expenses
Total ongoing expenses
Average NAV
Ongoing charges ratio (using AIC methodology)
1 "Master Funds” includes FOMC III LP, FOIF II LP, Wollemi Fund and Cycad Investments LP.
Company
US$
Master Funds¹
US$
133,862
(2,539)
131,323
37,050,194
0.35%
364,345
(576)
363,769
Total
US$
498,207
(3,115)
495,092
37,050,194
1.34%
86 .