FINANCIAL STATEMENTS
FAIR OAKS INCOME
LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2024
CONTENTS
Company Overview
Highlights
1
Summary Information
2
Strategic Review
Chair’s Statement
4
Investment Adviser’s Report
6
Strategic Report
20
Governance
Board of Directors
27
Disclosure of Directorships in Public Companies
28
Directors’ Report
29
Corporate Governance
34
Statement of Directors’ Responsibilities
40
Directors’ Remuneration Report
41
Audit Committee Report
42
Management Engagement Committee Report
46
Independent Auditor’s Report
48
Financial Statements
Statement of Comprehensive Income
55
Statement of Changes in Shareholders’ Equity
56
Statement of Financial Position
57
Statement of Cash Flows
58
Notes to the Financial Statements
59
Additional Information
Portfolio Statement (unaudited)
93
Management and Administration
94
Appendix – Alternative Performance Measures (unaudited)
95
COMPANY OVERVIEW
1
Highlights
31 December 2024
31 December 2023
2021 Shares
Net Asset Value
US$211,775,810
US$215,416,244
Net Asset Value per share
US$0.5614
US$0.5638
Share last-price at year-end
US$0.5400
US$0.5500
Discount to Net Asset Value
(3.80%)
(2.45%)
Ongoing charges figure (2021 Shares only)1
0.46%
0.45%
Ongoing charges figure (look through basis)2
1.40%
1.37%
31 December 2024
31 December 2023
Realisation Shares
Net Asset Value
US$23,961,546
US$28,523,929
Net Asset Value per share
US$0.5832
US$0.5715
Share last-price at year-end
US$0.5710
US$0.5700
Discount to Net Asset Value
(2.26%)
(0.26%)
Ongoing charges figure (Realisation Shares only)1
0.38%
0.41%
Ongoing charges figure (look through basis)2
1.32%
1.32%
•
The Company’s Net Asset Value (“NAV”) return per 2021 Share was 14.91%3 (31 December 2023:
12.98%) for the year ended 31 December 2024 on a total return basis (with dividends reinvested). The
NAV return per Realisation Share was 17.35%3 (31 December 2023: 13.82%) for the year ended 31
December 2024 on the same basis.
•
As at 31 December 2024, the Company’s total market capitalisation was US$227.2 million, comprising
US$203.7 million of 2021 Shares and US$23.5 million of Realisation Shares4.
•
The Company’s 2021 Shares closed at a last-price of US$0.5400 on 31 December 2024 (31 December
2023: US$0.5500). The 2021 Shares traded at an average discount to NAV of 1.5% during the year
ended 31 December 2024 (31 December 2023: Discount 11.71%).
•
The Company’s Realisation shares closed at a last-price of US$0.5710 on 31 December 2024 (31
December 2023: US$0.5700). The Realisation Shares traded at an average discount to NAV of 0.7%
during the year ended 31 December 2024 (31 December 2023: Discount 4.29%).
•
The Company declared dividends of 8.00 US cents per 2021 Share and Realisation Share in the year
ended 31 December 2024 (31 December 2023: 8.00 US cents per 2021 Share and Realisation Share).
1 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 95 to 98.
2 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 95 to 98.
3 See “Appendix” on pages 95 to 98.
4 Market capitalisation calculated based on the closing 2021 Share price and Realisation Share price at 31 December 2024.
COMPANY OVERVIEW
2
Summary Information
Principal Activity
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, to be able
to do so by having their 2017 Shares redesignated
as 2021 Shares, with such 2021 Shares investing
in the new Master Fund III, which has a planned
end date of 12 June 2030 and an investment
objective and policy substantially similar to that of
the Master Fund II.
On 17 September 2024 and 6 December 2024, the
Company
returned
US$2,850,050
and
US$2,100,000 by way of a compulsory partial
redemption of Realisation Shares, which amounted
to 5,082,007 and 3,738,331 Realisation Shares (31
December 2023: US$3,255,010 compulsory partial
redemption amounted to 5,672,083 shares).
On 29 February 2024, the Company issued 848,660
2021 Shares from treasury at a price US$0.5775.
The Treasury shares were issued at a premium
leading to no dilution for the existing shareholders.
During the year ended 31 December 2024 the
Company bought back 5,603,189 2021 Shares for
US$3,016,924 (31 December 2023: 20,699,431
shares for US$10,468,165).
At 31 December 2024, the Company has 41,086,020
(31 December 2023: 49,906,358) Realisation Shares
and 377,255,540 (31 December 2023: 382,010,069)
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 2024, the Company had direct
holdings of 9.59% (31 December 2023: 9.59%) in the
Master Fund II and 95.61% holding in Master Fund
III (31 December 2023: 95.43%), which in turn had a
holding of 62.21% in the Master Fund II (31
December 2023: 62.21%). Together, the Company
held a direct and indirect holding of 69.06% in the
Master Fund II (31 December 2023: 68.96%).
The Master Funds
At 31 December 2024, the Master Fund II had six
limited partners (31 December 2023: six limited
partners), including Fair Oaks Founder II LP, a
related entity. At 31 December 2024, the Master
Fund III had three limited partners (31 December
2023: three limited partners), including Fair Oaks
Founder VI LP. The General Partner of the Master
Funds is Fair Oaks Income Fund (GP) Limited (the
“General Partner” or “GP”).
COMPANY OVERVIEW
3
Summary Information (continued)
Principal Activity (continued)
Cycad and Wollemi
The Master Funds hold investments in Wollemi
Investments I LP ("Wollemi"), a Guernsey limited
partnership established on 9 March 2021. Aligned
with the Company's investment policy, Wollemi
invests
in
Collateralised
Loan
Obligations
("CLOs"). Previously, Wollemi held an investment
into Cycad Investments LP, a limited partnership
registered in the United States of America on 2
June 2017. Cycad also invested into CLOs. Cycad
was liquidated during the year. At 31 December
2024, the Master Fund II had direct holdings of
76.94% (31 December 2023: 89.43%) and Master
Fund III had a direct holding of 14.82% (31
December 2023: 10.57%) in 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
attractive,
risk-adjusted
returns,
principally through income distributions.
The investment policy of the Company is to invest
(either directly and/or indirectly through the Master
Funds) in US, UK 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 implements its investment policy by:
1.
with respect to those assets of the Company
attributable to the Realisation Shares: investing
in Master Fund II; and
2.
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 NAV in aggregate, and
also of the NAV of each share class, at the time of
investment. The Company cannot make any other
types of investment without shareholder consent to a
change of investment policy by ordinary resolution at
a general meeting of the Company.
STRATEGIC REVIEW
4
Chair'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 2024.
The Company’s 2021 Share NAV and share price generated a total return (with dividends reinvested) of
+14.91% and +13.06% respectively in 2024. The Company’s 2021 Shares closed at a mid-price of 54.0 US
cents as of 31 December 2024, representing a discount to NAV of -3.80%.
The Company’s Realisation Share NAV and share price generated a total return (with dividends reinvested) of
+17.35% and +14.99% respectively. The Company’s Realisation Shares closed at a mid-price of 57.1 US cents
as of 31 December 2024, representing a discount to NAV of -2.26%.
Figure 1.1 – Total return: 2021 Shares NAV and share price in 2024
The total return for the JP Morgan US leveraged loan index in 2024 was +9.43%.5 In the same period, the JP
Morgan US high yield total return was +8.94%6.
Table 1.2 – Total returns in 20245-7
FY 2024 total return
Company’s 2021 NAV
+14.91%
Company’s 2021 Share price
+13.06%
J.P. Morgan US Leveraged Loan index
+9.33%
J.P. Morgan US High Yield index
+8.75%
Cash flow and dividends
The CLOs which the Master Funds hold have experienced an annualised default rate since inception of 0.37%7
and had CCC and below exposure of 4.58%8 as at 31 December 2024, both well below the market’s average
of 1.72%9 and 5.11%10, respectively. As a result of the strong fundamental performance of the portfolio, all CLO
equity and debt investments made their scheduled distributions in 2024.
5 J.P. Morgan. Leveraged Loan Index Summary Market Index Value. Data as at 31 December 2024.
6 J.P. Morgan. Domestic HY Summary Market Index Value. Data as at 31 December 2024.
7 Fair Oaks Capital data. Annualised default rate of the control CLO equity positions since inception. Data as at 31 December 2024.
8 Intex. Caa1, Caa2, Caa3, Ca and C rated assets (Moody’s). Based on loan facility rating from Moody’s. Data as at 31 December 2024.
9 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 2024.
10 Pitchbook LCD. Data as at 31 December 2024.
STRATEGIC REVIEW
5
Chair's Statement (continued)
Cash flow and dividends (continued)
The Company paid 8.0 US cents in dividends per 2021 Share in respect to the year ending December 2024.
The dividends are well-covered by the distributions received by the Master Funds. The dividend yield for the
2021 Shares was 14.8% as of the end of December, based on the closing share price.11
Figure 1.3 – Cumulative dividends per share since inception (US cents per 2021 Share)
The projected gross return of the portfolio's positions at December 2024 valuations is 22%, assuming a 2%
annual default rate compared to the current trailing 12-month loan default rates of 0.91% and 0.42% in the US
and Europe, respectively.12
Share buyback programme
The Board continued through the financial period to implement the Company’s share buyback programme
announced in September 2022, repurchasing 5.6 million 2021 Shares in 2024, equivalent to 1.5% of the 2021
Shares in issue at the start of the year. The share buyback was further supported by the Adviser’s commitment
to reinvest 25% of management fees should the shares trade at a discount. The 2021 Shares ended the year
trading at a -3.8% discount to NAV, which compared to a -25.4% discount for the Alternative Funds Ex-3i
category.
Material events
On 22 April 2024, the Company was pleased to announce the appointment of Trina Le Noury as a non-executive
Director of the Company. Ms. Le Noury was appointed as Audit Committee Chair upon the resignation of Mr.
Bridel in December 2024.
Further to the announcement made on 22 April 2024, and in line with the Board’s succession plan, the Company
announced that Mr. Bridel had resigned as a Non-Executive Director of the Company effective close of business
on 31 December 2024.
Richard Burwood
Chair
11 Dividend yield is calculated using the most recent dividend annualised and Fair Oaks Income Fund 2021 Share price as at 31 December 2024.
12 Intex as at 31 December 2024. Assuming 2% annual default rate after 12m, linear increase from 0.91% to 2% in year 1. 70c recovery rate, 25% prepayment
rate, reinvestment in new loans with 3.5% spread at 99.5c. Call scenario assumes loans are called at 97.5c. Other assumptions available on request.
14c
28c
41c
52c
61c
66c
76c
86c
94c
102c
0c
20c
40c
60c
80c
100c
120c
Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24
STRATEGIC REVIEW
6
Investment Adviser’s Report
Portfolio Review
As at 31 December 2024, the Master Funds held 15 CLO equity positions and 11 CLO mezzanine investments
offering exposure to 1,268 loan issuers13 and 15 CLO managers. Subordinated note positions represented
84.6% of the portfolio’s market value.14
Figure 1.1 – Portfolio composition of the Master Funds 15
Figure 1.2 – Historical rating breakdown (excl. cash) 16
During 2024, Master Fund III invested in the majority equity of one new European CLO, Fair Oaks Loan Funding
V (which is managed by Fair Oaks Capital Limited), and in four mezzanine positions.
13 As at 31 December 2024. Based on the underlying loans in CLOs held by the Master Funds.
14 As at 31 December 2024. Percentage by market value of control CLO equity positions.
15 Fair Oaks Capital as at 31 December 2024 and 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”).
16 Fair Oaks’ 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 2024.
BB Rated CLO Notes
1.0%
(2023: 1.6%)
B Rated CLO Notes
14.5%
(2023: 14.4%)
Subordinated Notes
84.6%
(2023: 84.0%)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Subordinated notes
B
BB
STRATEGIC REVIEW
7
Investment Adviser’s Report (continued)
Portfolio Review (continued)
Fair Oaks Loan Funding V:
•
CLO backed by a portfolio of European broadly syndicated loans.
•
The manager of this CLO’s portfolio is Fair Oaks Capital Limited, the investment advisor to the Company
and Master Fund II, Master Fund III and Wollemi.
•
This CLO’s current target portfolio has a principal value of €350 million across an expected 138 unique
bank loan issuers, with an expected weighted average exposure per issuer of approximately 0.69%.
•
The potential total return for this investment, as estimated by the general partner of the Master Fund III,
is 14.6% (USD hedged) per annum.
On a look through basis, the Company sold four CLO equity positions and six mezzanine positions in 2024.
Additionally, the strong loan market and the control equity positions held enabled it to direct the liquidation of
three CLO equity positions.
Figure 1.3 – Currency breakdown (excl. cash)
All CLO equity investments (including reset and refinancings) completed since July 2019 have included ESG-
related investment criteria in the CLO’s documentation. CLO investments subject to ESG investment criteria
represented 77.9% of all CLO equity investments in the portfolio as of the end of 2024.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
USD
EUR
STRATEGIC REVIEW
8
Investment Adviser’s Report (continued)
Portfolio Review (continued)
Figure 1.4 – Subordinated note investments subject to ESG investment restrictions 17
Figure 1.5 – Collateral geographical (top five) and currency breakdown 18
17 The proportion of the Fund’s investments which include ESG-focused investment criteria is being reported as per the Fund’s investments with ESG-
focused investment criteria as defined by Fair Oaks Capital.
18 Intex as at 31 December 2024. Based on loan par value weighted by the Master Funds’ proportional ownership of CLO Notes.
Subordinated note
investments subject to ESG
investment restrictions
77.9%
(2023: 76.8%)
Other subordinated
notes
22.1%
(2023: 23.2%)
STRATEGIC REVIEW
9
Investment Adviser’s Report (continued)
Portfolio Review (continued)
Figure 1.6 – Industry diversification by Moody’s (top 10) 19
Figure 1.7 – Rating breakdown 20
In Fair Oaks’ 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 benefitted from
below-average exposure to sectors such as retail or energy.
Figure 1.8 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 Oct-24 and Jan-25 were impacted by the presence of some older (now liquidated) CLOs
in the Master Fund II portfolio.
19 Intex as at 31 December 2024. Based on loan par value weighted by the Master Funds’ proportional ownership of CLO Notes.
20 Intex as at 31 December 2024. Based on Moody’s sectors and loan par value weighted by the Master Funds’ proportional ownership of CLO Notes.
13.0%
10.7%
9.7%
6.6%
6.0%
5.6%
5.2%
4.9%
4.7%
3.5%
0%
2%
4%
6%
8%
10%
12%
14%
Healthcare & Pharmaceuticals
High Tech Industries
Services: Business
Banking, Finance, Insurance & Real Estate
Telecommunications
Services: Consumer
Beverage, Food & Tobacco
Chemicals, Plastics & Rubber
Construction & Building
Hotel, Gaming & Leisure
1%
4%
4%
9%
16%
37%
21%
5%
3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Baa3
and
above
Ba1
Ba2
Ba3
B1
B2
B3
Caa1
Caa2
and
below
STRATEGIC REVIEW
10
Investment Adviser’s Report (continued)
Portfolio Review (continued)
Figure1.8 – Annualized Equity Distributions (over par) 21
Figure 1.9 – Overcollateralisation (“OC”) test headroom 22
Looking at the sustainability of these cashflows, the OC test headroom, which determines whether distributions
may be temporarily diverted from the CLO Equity, remains sufficient, reducing the potential for any future cash-
flow diversion. The average CLO equity test value is 4% above its threshold. Assuming 70% recovery in case
of default, it would require in excess of 14% cumulative defaults to generate the par loss required to erode 4%
headroom, before considering the positive effect of any cash-flow diversion.25
21 Intex, Barclays as at 31 January 2025. Based on annualised quarterly distributions (as a percentage of par) of US equity notes directly held by the Master
Fund II.
22 Intex as at 31 January 2025.
STRATEGIC REVIEW
11
Investment Adviser’s Report (continued)
Portfolio Review (continued)
US Loan Market Update
The trailing 12-month US loan default rate fell from 1.53% in December 2023 to 0.91% in December 2024. The
US loan distress ratio (loans trading below 80c, a potential indicator of the direction of future defaults) decreased
from 6.36% in December 2023 to 4.64% in December 2024.23
According to Pitchbook LCD’s December 2024 quarterly survey of market participants, the expectation is that
the US loan default rate, at the end of 2025, will be between 1.0% and 1.49%. Forecasts from rating agencies
and bank research range from 2.0% to 6.0%, however it is important to note that the definition of default in
these reports varies.24
Figure 1.10 – US loan default rate 25
The average bid price of the LSTA US leveraged loan index was 97.33c at the end of 2024, compared to 96.21c
at the end of 2023.
23 PitchBook LCD as at 31 December 2024. LSTA US leveraged loan index. Distress ratio by issuer count and default rate by principal amount.
24 PitchBook LCD as at 09 December 2024. LCD’s Quarterly US Leveraged Finance Survey. 2025 forecasts from YE-24 reports: JP Morgan, Citi Bank, Bank
of America, Deutsche Bank, S&P and Moody’s.
25 PitchBook LCD as at 31 December 2024. LSTA US leveraged loan index. Distress ratio by issuer count and default rate by principal amount.
0%
1%
2%
3%
4%
5%
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
Apr-23
Jun-23
Aug-23
Oct-23
Dec-23
Feb-24
Apr-24
Jun-24
Aug-24
Oct-24
Dec-24
STRATEGIC REVIEW
12
Investment Adviser’s Report (continued)
US Loan Market Update (continued)
Figure 1.11 - US loan price distribution 26
Figure 1.12 –Average bid price of US leveraged loans, BB and B rated loans 27
There were net inflows of US$9.5bn from prime loan funds in 2024, compared to US$17.3bn of outflows in 2023
and $13.5bn in 2022. Towards the end of 2024, changing expectations surrounding the path of US interest rates
(as catalysed by a shifting geopolitical landscape with expectations of new tariffs and inflationary policy)
accelerated this demand for floating-rate loans. This positive technical demand supported the increase in average
US loan prices during 2024.
26 Pitchbook LCD as at 31 December 2024. LSTA US Leveraged Loan Index.
27 PitchBook LCD as at 31 December 2024.
0%
10%
20%
30%
40%
50%
60%
70%
Dec-19
Apr-20
Aug-20
Dec-20
Apr-21
Aug-21
Dec-21
Apr-22
Aug-22
Dec-22
Apr-23
Aug-23
Dec-23
Apr-24
Aug-24
Dec-24
Below 70
Below 80
Below 90
70c
75c
80c
85c
90c
95c
100c
105c
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Jun-24
Sep-24
Dec-24
US LLI
BB loans
B loans
STRATEGIC REVIEW
13
Investment Adviser’s Report (continued)
US Loan Market Update (continued)
Figure 1.13 – Flows into loan funds by year 28
Aided by an improving credit environment, loan maturities were successfully extended in 2024 through
refinancings. The notional of US loans maturing in 2025-2026 has fallen from US$258bn as of year-end 2023 to
US$57bn as of year-end 2024.
Figure 1.14 – Maturity wall of the US loan market of performing loans (US$bn) 29
28 PitchBook LCD as at 31 December 2024.
29 PitchBook LCD as at 31 December 2024. LSTA US LLI maturity breakdown.
-40
-30
-20
-10
0
10
20
30
40
50
60
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
$bn
2020
2021
2022
2023
2024
STRATEGIC REVIEW
14
Investment Adviser’s Report (continued)
European Loan Market Update
The trailing 12-month European loan default rate fell from 1.62% in December 2023 to 0.42% in December 2024.
The European distress ratio (loans trading below 80c, a potential indicator of the direction of future defaults)
decreased from 4.32% in December 2023 to 2.05% in December 2024.30 European loan default rate forecasts
from rating agencies and bank research for 2024 range from 1.0% to 2.7%.31
Figure 1.15 – European loan default rate 34
The average bid price of the Morningstar European Leveraged Loan Index was 98.01c at the end of 2024,
compared to 96.02c at the end of 2023. This represents the highest year end value for the index since 2021.
Figure 1.16 - Average bid price of European leveraged loans, BB and B rated loans 32
30 PitchBook LCD as at 31 December 2024. LSTA US LLI maturity breakdown.
31 2025 forecasts from YE-24 reports: Barclays, Morgan Stanley, Citi Bank, Deutsche Bank, S&P, and Moody’s.
32 Pitchbook LCD as at 31 December 2024. Morningstar European Leveraged Loan Index.
0%
1%
2%
3%
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Mar-23
Jun-23
Sep-23
Dec-23
Mar-24
Jun-24
Sep-24
Dec-24
70
75
80
85
90
95
100
105
ELLI
BB loans
B loans
STRATEGIC REVIEW
15
Investment Adviser’s Report (continued)
European Loan Market Update (continued)
In Europe, the notional of European loans maturing in 2025-2026 has fallen from €58bn as of year-end 2023 to
€11bn as of year-end 2024. The proportion of loans due in the next two years is lower than that at the start of
2023 (3.2% vs 4.7%)33 due to a similar dynamic observed in the US, as the loan market address near-term
maturities through refinancings amid strong demand for floating-rate instruments in an uncertain interest rate
environment.
Figure 1.17 – Maturity wall of the European loan market of performing loans (€bn) 36
US CLO Market Update
US primary CLO new issuance was US$202bn in 2024, compared to US$116bn in 2023. 2024 refinancings and
resets totalled US$84bn (212 deals) and US$223bn (451 deals), compared to US$5bn (14 deals) and US$20bn
(43 deals) in 2023. Despite record high CLO new issuance in 2024, there has been a marked divergence between
CLO gross and net issuance (with a US net supply of US$55bn34) over the year. As redemptions reached record
levels, this offset gross supply and supported demand for new CLO issuance (35% of CLOs were outside their
reinvestment period at start of 2024). Net AAA-rated supply was even negative over the year, at -US$4 billion,
helping to support spread tightening.37
Forecasts for CLO gross new issuance in 2025 are US$155-200bn and forecasts for refi/reset volume are
US$100-300bn.35 However, net issuance is expected to continue to be markedly lower, at US$35-40bn.36
33 PitchBook LCD as at 31 December 2024. Morningstar European Leveraged Loan Index. Distribution by year of maturity.
34 Bank of America, “CLO Weekly”, 07 February 2025.
35 PitchBook LCD as at 31 December 2024. 2025 forecasts from YE-24 reports: JP Morgan, BNP Paribas, Barclays, Citi, Bank of America, Deutsche Bank
36 Nomura, “2025 CLO Outlook”, 19 November 2024.
STRATEGIC REVIEW
16
Investment Adviser’s Report (continued)
European Loan Market Update (continued)
Figure 1.18 – US CLO new issue volume 37
Figure 1.19 – US CLO AAA primary spreads (bps) 38
Demand for CLO debt from new investors and existing investors has helped to drive CLO spreads tighter across
the capital structure in 2024. Notably, assets in US CLO ETFs grew to US$22bn by December 2024, increasing
by US$15.8bn in 2024 alone and bringing a new source of demand for CLO debt.39 Demand for AAA CLOs from
existing investors is also likely to grow given lower capital requirements for US banks. 40
37 PitchBook LCD as at 31 December 2024. CLO databank.
38 JP Morgan as at 31-Dec-23. US CLO AAA primary spreads.
39 Bloomberg and Fair Oaks Capital as at 31 December 2024.
40 Nomura, “2025 CLO Outlook”, 19 November 2024.
$0bn
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USD CLO AAA
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Average since Mar-20
STRATEGIC REVIEW
17
Investment Adviser’s Report (continued)
US CLO Market Update (continued)
Figure 1.20 – US CLO ETF flows 42
Continued demand for floating-rate instruments and limited net CLO issuance are expected to lead to continued
CLO spread tightening in 2025. Should rates remain higher-for-longer in the US, we believe this has the potential
to further support CLO spread tightening. Attractive CLO financing rates, along with an active loan market, will be
constructive for new-issue CLO equity transactions.
European CLO Market Update
As CLO spreads tightened over the course of 2024, gross European CLO issuance hit a new record high in 2024.
The European CLO market saw gross new issuance of €48bn in 2024, compared to €27bn in 2023. 2024
refinancings and resets totaled €3bn and €31bn (73 deals), compared to €0bn and €2bn (5 deals) in 2023.41
Nevertheless, a similar trend to the US emerged over the year, as net supply was limited to €23bn. While higher
than 2023, this net issuance is below 2021 and 2022.42
Forecasts for European CLO new issuance in 2025 are in the range of €45-50bn and forecasts for 2025 refi/resets
are €35-60bn.43 Net European CLO issuance is expected to be lower, at €25bn, driven by continued prepayments
of CLO debt.44
41 PitchBook LCD as at 31 December 2024. CLO databank.
42 Bank of America and Fair Oaks Capital as at 31 December 2024.
43 2025 forecasts from YE-24 reports: JP Morgan, Barclays, Citi, BNP Paribas, Bank of America.
44 Deutsche Bank, “EUR CLO 2025 Outlook”, 19 November 24.
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STRATEGIC REVIEW
18
Investment Adviser’s Report (continued)
European CLO Market Update (continued)
Figure 1.21 – European CLO new issue volume 44
Figure 1.22 - European AAA primary spreads (bps) 45
Sustained demand for floating-rate products, minimal idiosyncratic risk, and slower spread compression relative
to other credit assets, we expect continued spread tightening in 2025. Supported by an attractive spread and
strong fundamentals, such spread tightening should create good opportunities to invest in CLO equity. We believe
CLOs are a compelling way to maintain attractive all-in return levels without ongoing rates volatility.
45 JP Morgan as at 31 December 2024. European CLO AAA primary spreads.
€0bn
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€20bn
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EUR CLO AAA
Primary Spread
Average since Mar-13
Average since Mar-20
STRATEGIC REVIEW
19
Investment Adviser’s Report (continued)
Outlook
We believe that the Company and the Master Funds are well positioned to generate attractive risk-adjusted
returns in 2025:
•
Stable and attractive dividend yield: current dividend yield of 14.8%.46
•
Low 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
2024.
•
Strong sourcing ability: the Master Funds benefits from strong, long-term relationships with CLO managers,
including preferential access to Fair Oaks-managed CLOs.
•
Strong alignment of interest. Ongoing reinvestment of 25% of quarterly management fees whenever the
Company trades at any discount to NAV
•
Structural advantages: supported by a rigorous valuation policy and fixed life of the Master Funds.
We continue to believe that the high-quality portfolio of primarily first-lien, senior secured loans with attractive
long-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
17 April 2025
46 As at 31 December 2024.
STRATEGIC REVIEW
20
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 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 evolving in nature rather than new and previously unidentified
risks. After considering the risks associated with relevant uncertainties created by emerging risks (including the
potential impact on markets and supply chains of changes in US trade policy), 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
Control / Mitigation
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 geo-
political risk, 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.
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.
STRATEGIC REVIEW
21
Strategic Report (continued)
Principal and emerging risks (continued)
Risk/Description (continued)
Control / Mitigation (continued)
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
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 cash flows receivable by the
Master Funds and a fall in the
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.
The
Risk
Committee
formally
monitors
the
investment
performance of the Company at least four times a year, 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.
The Company’s policy on credit risk mirrors that of the Master
Funds’, 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.
The high rates of global inflation in 2022-24 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 since 2023 has increased the interest cost for
borrowers of the loans held by CLOs. Changes in US trade policy
will similarly have a cost impact on some companies.
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 Note 5 of the
Financial Statements for further details of this diversification.
STRATEGIC REVIEW
22
Strategic Report (continued)
Principal and emerging risks (continued)
Risk/Description (continued)
Control / Mitigation (continued)
Financial risk – Counterparty risk –
Stable
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.
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.
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 that meet the credit
standards set out in the Company’s prospectus. In addition, 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 Administrator and Investment Adviser review the Company’s
income and cash flow forecasts on a monthly or ad hoc basis as
required to ensure, as far as possible, the Company will always
have sufficient liquidity to meet its 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.
Compliance and regulatory risk –
Stable
Compliance and regulatory risk can arise
where processes and procedures are not
followed correctly or where incorrect
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.
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.
STRATEGIC REVIEW
23
Strategic Report (continued)
Principal and emerging risks (continued)
Risk/Description (continued)
Control / Mitigation (continued)
Environmental, Social and Governance
(ESG) risk – Stable
Failure of the Company to identify
potential future ESG requirements could
lead to the Company’s shares being less
attractive to investors. Failure to engage
with stakeholders and actions arising from
activist shareholders.
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 ESG regulatory and reporting requirements and
are 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.
Governance of the CLOs in which the Master Funds invest is
strictly controlled by detailed provisions in each CLO’s Offering
Memorandum and by the appointed CLO trustees.
Political and Economic Risk
– Increased
The risk of a complex mix of political and
economic risks, with a growing concern
for geopolitical instability and its impact on
trade and global cooperation.
The Master Funds’ CLO investments do not hold any securities in
the Russia/Ukraine region and as such the performance and
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 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.
STRATEGIC REVIEW
24
Strategic Report (continued)
Principal and emerging risks (continued)
Risk/Description (continued)
Control / Mitigation (continued)
Political and Economic Risk
– Increased (continued)
The imposition of import tariffs by the new US administration is
likely to have a negative impact on the profitability of some US
loan issuers, which will face higher input costs, and some
European loan issuers, who may experience lower export sales
to the US.
The precise impacts are difficult to assess given the uncertainty
over US policy and the complexity of international supply chains.
The Investment Adviser continues to carefully monitor the
performance of the Master Funds’ investments, working closely
with the Directors on emerging risks to the Company.
Going Concern
The Directors have assessed the financial position of the Company as at 31 December 2024 and the factors
that may impact its performance (including the potential impact on markets and supply chains of changes
in US trade policy) in the forthcoming year.
Changes in US trade policy
The imposition of import tariffs by the new US administration is likely to have a negative impact on the
profitability of some US loan issuers, which will face higher input costs, and some European loan issuers,
who may experience lower export sales to the US. The precise impacts are difficult to assess given the
uncertainty over US policy and the complexity of international supply chains. The Company’s Investment
Adviser is closely monitoring the situation and its early assessment is that the Master Funds’ portfolios’
exposure to the imposition of US tariffs is relatively limited and thus the impact on the Company’s
performance will not be significant.
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.
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 2028, 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 2028 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.
STRATEGIC REVIEW
25
Strategic Report (continued)
Viability Statement (continued)
At 31 December 2024, 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 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 evaluate the potential impact of the Company’s
principal risks actually occurring, primarily, severe changes to macro-economic 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 2028.
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 Funds 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.
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 2024, the credit rating of BNP was A1 as rated by Moody’s (31 December 2023: A2)
and A+ by Standard & Poor’s (31 December 2023: A+) and the credit rating of US Bank was A2 (31
December 2023: A2) as rated by Moody’s and A+ (31 December 2023: A+) by Standard & Poor’s.
STRATEGIC REVIEW
26
Strategic Report (continued)
Management Arrangements (continued)
Administrator
Administration and Company Secretarial services are provided to the Company by Apex Fund and
Corporate Services (Guernsey) Limited (formerly Sanne Fund Services (Guernsey) Limited (the
“Administrator”)).
The Administrator also provides these services to Master Fund II, Master Fund III, Wollemi 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.
GOVERNANCE
27
Board of Directors
The Directors of the Company, all of whom are
non-executive and independent, are listed as
follows:
Richard Burwood
(Chair of the Board and Chair of the Management
Engagement Committee).
Mr. Burwood has over 35 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
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. From 2015 to 2023, Mr.
Burwood was
a Board
Member
of Funding
Circle SME Income Fund Ltd,
which
provided 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.
Fionnuala Carvill
(Chair of the Risk Committee and the Nomination
& Remuneration Committee).
Ms. Carvill is a Non-Executive Director of
Investec
Bank
(Channel
Islands)
Limited,
Partners Group Private Equity Limited, The
Chartered Institute for Securities & Investment
Future Foundation and Guernsey Community
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 Innovation at 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 the Worshipful
Company of International 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. With
her charitable directorships she holds roles from
fundraising and capacity building to governance
and impact assessment. Fionnuala is a Guernsey
resident.
Katriona (“Trina”) Le Noury
(Chair of the Audit Committee).
Ms. Le Noury is a qualified chartered accountant
with more than 20 years' experience working in
the funds industry. She is an Independent Non-
Executive Director of JPEL Private Equity Limited
and Tufton Assets Limited, both London listed
investment companies, as well as Bansk Group
GP Limited, the general partner to a Guernsey
private investment fund, and two not-for-profit
organisations. Before becoming an Independent
Non-Executive Director in 2023, Ms. Le Noury
held senior management positions at two
separate Private Equity firms, including holding
directorships on the respective firms' fund
General Partner boards. Ms. Le Noury has a first-
class honors degree in Mathematics from
Aberdeen University, holds a Diploma in
Company Direction from the Institute of Directors,
and is a Fellow of the Association of Chartered
Certified Accountants. Trina is a Guernsey
resident.
GOVERNANCE
28
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
None
Fionnuala Carvill
Partners Group Private Equity Limited
London Stock Exchange – Main Market
Trina Le Noury
Tufton Assets Limited
JPEL Private Equity Limited
London Stock Exchange – SFS
London Stock Exchange – Main Market
GOVERNANCE
29
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 2024. 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 55.
The Board declared dividends of US$34,391,508 during 2024 (2023: US$35,667,058) followed by an additional
dividend declaration of US$8,366,317 on 6 February 2025 in relation to the year ended 31 December 2024
(dividends declared in relation to the year ended 31 December 2023: US$8,651,028). 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 Funds in the relevant financial period
attributable to the Company’s investment in the Master Funds, 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 27.
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 2023: £45,000) each
per annum. The Nomination and Remuneration committee recommended an increase of £3,000 in the fee of
the Audit Committee Chair which was approved by the Board in January 2024.
The Directors had the following interests in the Company at 31 December 2024 and 31 December 2023, held
either directly or beneficially:
31 December 2024
31 December 2023
No. of
2021
No. of
2021
Shares
Percentage
Shares
Percentage
Name
Jon Bridel47
40,000
0.01%
40,000
0.01%
47 All shares held by a person closely associated to Mr. Bridel. Mr. Bridel resigned from the Board on 31 December 2024.
GOVERNANCE
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Directors' Report (continued)
Substantial Shareholdings
As at 31 March 2025, 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
71,972,811
17.74%
Nortrust Nominees account #1
32,218,310
7.94%
Vidacos Nominees account #54
23,922,224
5.89%
CGWL Nominees account #1
22,988,338
5.66%
There were no significant shareholder changes in the period from 31 March 2025 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 by the Company on an annual basis.
Alternative Investment Fund Managers Directive (“AIFMD”)
The Company is categorised as a non-EU Alternative Investment Fund (“AIF”) (as defined in the AIFMD) 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.
GOVERNANCE
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Directors' Report (continued)
Alternative Investment Fund Managers Directive (“AIFMD”) (continued)
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 2024. 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 41 and in accordance with the principles established by
AIFMD.
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
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.
GOVERNANCE
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Directors' Report (continued)
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 improprieties in matters of financial reporting or other matters. It has concluded that adequate
arrangements are in place for the proportionate and independent investigation of such matters and, where
necessary, for appropriate follow-up action to be taken within their organisation.
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 2024, 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
2024, 84.6% 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 conjunction with suppliers, the Company aims to conduct itself
responsibly, ethically and fairly.
GOVERNANCE
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Directors' Report (continued)
Environmental and Social Policy (continued)
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 an extremely 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 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.
“Sustainability factors” are environmental, social and employee matters, respect for human rights, anti-corruption
and anti-bribery matters. Due to the current lack of detailed relevant information available from the borrowers of
loans in CLO portfolios, the Investment Adviser does not consider the adverse impacts of investment decisions
on sustainability factors. The investments underlying this financial product do not take into account the EU criteria
for environmentally sustainable economic activities.
By order of the Board
Richard Burwood
Director
17 April 2025
GOVERNANCE
34
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”), 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 2024, 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 2025, 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 Chair 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”).
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. Following the updates to the
2024 Code, AIC issued its 2024 Code which applies to accounting periods beginning on or after 1 January
2025, with the exception of Provision 34. This provision is applicable for accounting periods beginning on or
after 1 January 2026. The Company is currently assessing the impact of revised 2024 Code and AIC Code.
Composition and Independence of Directors
Mindful of the length of service of the original Board, the Company devised a succession plan. On 27 September
2023, Professor Claudio Albanese stepped down as Chair of the Board and was succeeded by independent
non-executive director, Richard Burwood, who was appointed to the Board on the same date. Professor
Albanese remained on the Board as an independent non-executive director until his retirement from the Board
in December 2023.
GOVERNANCE
35
Corporate Governance (continued)
Composition and Independence of Directors (continued)
On 22 April 2024, the Board were pleased to announce the appointment of Trina Le Noury as a non-executive
Director of the Company. Ms. Le Noury replaced Mr. Bridel as the new Chair of the Audit Committee on 1
January 2025, upon Mr. Bridel’s resignation. Mr. Bridel served on the Board since its inception in 2014 and has
provided effective independent judgment on issues of strategy, performance, resources and conduct.
Appointment process:
The Directors appointment process involved identifying gaps and needs in the Board’s composition and then
reviewing the skill set of potential candidates with a view 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 (“OSA”), an independent search consultancy with no connection to the Company or its
Directors, to assist with the above appointment.
During the year OSA was engaged to conduct the search then presented a short list of potential candidates to
join the Board and take on the role of Audit Committee Chair. In addition, the Board had suggested some
potential candidates for OSA to include to their long list. The result of the search produced a final shortlist of
three candidates, which included Ms. Le Noury. All of the serving members of the Board reviewed the curriculum
vitae for each of the candidates and met them as part of the formal interview process.
As at 31 December 2024, 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 27.
Richard Burwood is the Chair of the Board and the Management Engagement Committee.
Trina Le Noury is the Chair of the Audit Committee.
Fionnuala Carvill is the Chair of the Risk Committee and the Nomination and Remuneration Committee.
In considering the independence of the Chair, the Board has taken note of the provisions of the AIC Code
relating to independence and has determined that Mr. Burwood is an Independent Director. As Chair, 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 2025, shareholders will
be asked to re-elect all the Directors of the Company.
At the Company’s last Annual General Meeting, which was held on 5 June 2024, no substantial number of votes
were cast against any resolutions. The most noticeable resolution was the issue of a further 38.2 million 2021
Shares, of which 9 percent voted against it.
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
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 they adhere 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.
GOVERNANCE
36
Corporate Governance (continued)
Board Diversity
At 31 December 2024, the Board of Directors of the Company comprises one male director and two female
directors.
The Board is committed to diversity and is supportive of increased gender and ethnic diversity. During 2022,
Fionnuala Carvill was appointed as the Company’s first female Director, Trina Le Noury was then appointed as
the second female Director during the year under review. Going forward the Board will ensure there is an equal
balance of gender in candidates for considered and 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 2024, the Company did meet the targets specified in the Listing Rules 9.8.6R(9)(a)(i) with
the Board comprising over 40 percent women as currently two out of the three Directors on the Board are
women. 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 continue to meet the target specified in Listing Rule
9.8.6R(9)(a)(i) as the Board is refreshed over time.
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, Nomination and Remuneration Committee and Management Engagement
Committee, to be senior positions and of these senior roles three are 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 in June 2025, the Board is of the view that each Director seeking re-
election should be 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 27.
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 Chair also has responsibility for assessing the individual Board members’ training and development
requirements.
GOVERNANCE
37
Corporate Governance (continued)
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 Chair’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 41.
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.
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 Chair and individual Directors are willing to meet shareholders to discuss any particular items of concern
regarding the performance of the Company. Members of the Board, including the Chair and the Audit Committee
Chair, 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 Companies Act”) are reported. The Board considers the
view 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 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 is 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 Adviser 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.
GOVERNANCE
38
Corporate Governance (continued)
Directors’ Meetings and Attendance
The following table shows the attendance at Board and Committee meetings during the year. There were four
quarterly Board meetings, four Audit Committee meetings, four Risk Committee meetings, two Nomination &
Remuneration Committee meetings, and four Management Engagement Committee meetings were held during
the year.
Board
Audit
Committee
Risk
Committee
Management
Engagement
Nomination &
Remuneration
Committee
Number of meetings held
Richard Burwood
4/4
4/4
4/4
4/4
2/2
Trina Le Noury (appointed to
the Board 22 April 2024)
3/4
2/4
3/4
2/4
1/2
Fionnuala Carvill
4/4
4/4
4/4
4/4
2/2
Jon Bridel
4/4
4/4
4/4
4/4
2/2
The Chair 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
The Audit Committee met four times during the year. It comprises the entire Board and was chaired by Jon
Bridel. Mr. Bridel resigned as Chair of the Audit Committee and Trina Le Noury succeeded him on 1 January
2025. 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 Audit Committee Report on page 42.
Risk Committee
The Risk Committee met four times during the year. It comprises the entire Board and is 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 2024. In January 2017, the Company was authorised to market in Sweden, Finland and Luxembourg.
GOVERNANCE
39
Corporate Governance (continued)
Board Committees (continued)
Management Engagement Committee
The Management Engagement Committee (“MEC”) met four times during the year. 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 46.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee met twice during the year. It comprises the entire Board and is
chaired by Fionnuala Carvill. 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.
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 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.
GOVERNANCE
40
Statement of Directors' Responsibilities
The Directors are responsible for preparing the
Directors’ Report and Financial Statements in
accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and the
Companies (Guernsey) Law, 2008 which give a
true and fair view of the state of affairs of the
Company and its profit or loss for that period.
In preparing the Financial Statements the
Directors are required to:
•
select suitable accounting policies and apply
them consistently;
•
make judgements and estimates that are
reasonable and prudent;
•
state
whether
applicable
accounting
standards have been followed, subject to any
material departures disclosed and explained
in the Financial Statements;
•
assess the Company’s ability to continue as a
going concern, disclosing, as applicable,
matters related to going concern; and
•
use 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.
The Directors are also responsible for the keeping
of proper accounting records which disclose with
reasonable accuracy at any time the financial
position of the Company and enable them to
ensure that the Financial Statements comply with
the Companies (Guernsey) Law, 2008 and the
Listing Rules of the SFS of the London Stock
Exchange. They are also responsible for the
system of internal controls, safeguarding the
assets of the Company and hence for taking
reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors confirm that they have complied with
these requirements in preparing the Financial
Statements.
The Directors are also responsible for the
maintenance and integrity of the corporate and
financial information included on the Company’s
website. Legislation in the United Kingdom and
Guernsey
governing
the
preparation
and
dissemination of financial statements may differ from
legislation in other jurisdictions.
So far as the Directors are aware, there is no relevant
audit information of which the Company’s auditor is
unaware, having taken all the steps the Directors
ought to have taken to make themselves aware of
any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Responsibility Statement
Each of the Directors, who are listed on page 27,
confirms to the best of their knowledge and belief:
•
the
Financial
Statements,
prepared
in
accordance with IFRS as issued by the IASB,
give a true and fair view of the assets, liabilities,
financial position and profit of the Company, as
required by DTR 4.1.12R;
•
the Management Report (comprising the Chair’s
Statement, the Investment Adviser’s Report, the
Directors’ Report, the Strategic Report and other
Committee Reports) includes a fair review of the
development and performance of the business
during the year, and the position of the Company
at the end of the year, together with a description
of the principal risks and uncertainties that the
Company faces, as required by DTR 4.1.8R and
DTR 4.1.9R; and
•
the Annual Report, comprising the Financial
Statements, Strategic Review and Governance
report, taken as a whole, is fair, balanced and
understandable.
Signed on behalf of the Board by:
Richard Burwood
Director
17 April 2025
GOVERNANCE
41
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:
31 December
2024
31 December
2023
Per Annum
Actual
Actual
£
£
£
Richard Burwood1
45,000
45,000
11,835
Jon Bridel2
48,000
48,000
45,000
Fionnuala Carvill
45,000
45,000
45,000
Trina Le Noury3
48,000
31,107
-
Professor Claudio Albanese4
45,000
-
45,052
169,107
146,887
1 Appointed to the Board as Chair on 27 November 2023.
2 Resigned from the Board on 31 December 2024.
3 Appointed to the Board on 22 April 2024.
4 Resigned from the Board on 31 December 2023.
For the year ended 31 December 2024, each Director is entitled to a fee of £45,000 per annum (31 December
2023: £45,000 per annum). During 2024 the Nomination and Remuneration Committee recommended a £3,000
increase in the Audit Committee Chair remuneration. This was approved by the Board in January 2024. Directors’
and Officers’ liability insurance cover is maintained by the Company on behalf of the Directors.
The Directors were appointed as non-executive Directors by letters issued on their respective appointments. Each
Director’s 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 2024 and 31 December 2023, 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.
Richard Burwood
Director
17 April 2025
GOVERNANCE
42
Audit Committee Report
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).
Chair and Membership
The Committee comprises the entire Board and is chaired by Trina Le Noury who took over chairmanship from
Mr. Bridel who retired on 31 December 2024. 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 27 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$193,511,462 as at 31 December 2024 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 2024 were audited by KPMG
who issued an unmodified audit opinion dated 17 April 2025.
GOVERNANCE
43
Audit Committee Report (continued)
Financial Reporting and Significant Risk (continued)
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 2024 to be reasonable.
•
Valuation of Master Fund II – The Company’s direct investment in the Master Fund II had a fair value of
US$23,961,902 as at 31 December 2024. 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 2024 were audited by KPMG who issued an unmodified audit opinion dated
17 April 2025. 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 2024 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.
GOVERNANCE
44
Audit Committee Report (continued)
External Auditor (continued)
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 2024, KPMG provided non-audit and audit services as listed below. KPMG
confirmed that the non-audit services provided during the year had not impacted on their independence and
outlined the reasons for this.
In addition, KPMG directors are subject to periodic rotation of assignments on audit clients under applicable laws,
regulations and independence rules. Their rotation policies comply with the FRC Revised Ethical Standard 2019
and Revised Ethical Standards 2024 effective from 15 December 2024,which states that the engagement director
should be rotated after serving in this capacity for the relevant period of no longer than five years. This rotation
policy is continually monitored. Steven Stormonth was first appointed as the audit engagement director for the
year ended 31 December 2019 audit so stepped down after the 2023 audit and was succeeded by Fiona Babbe.
The following table summarises the remuneration payable to KPMG and to other KPMG International member
firms for audit and non-audit services during the year ended 31 December 2024 and 31 December 2023,
translated into the presentation currency at the exchange rate prevailing at 31 December 2024 and 31 December
2023, respectively.
31 December 2024
31 December 2023
KPMG Channel Islands Limited
US$
US$
– Annual Audit of the Company and related entities *
440,151
431,450
– Interim review
58,616
56,686
Other KPMG International member firms
– Agreed upon procedures – Fair Oaks CLOs
-
-
* Increase in audit fees are due to inflationary increases and the effect of foreign exchange
Internal Controls
As the Company’s investment objective is to invest all of its assets into the Master Funds, the Audit Committee,
after consultation with the Investment Adviser and Auditor, considers the key risk of misstatement in its Financial
Statements to be the valuation of its investments in the Master Funds, but is also mindful of the risk of the override
of controls by its two main service providers: the Investment Adviser and the Administrator.
The Investment Adviser and the Administrator together maintain a system of internal control on which they report
to the Board. The Board has reviewed the need for an internal audit function and has decided that the systems
and procedures employed by the Investment Adviser and Administrator provide sufficient assurance that a sound
system of risk management and internal control, which safeguards shareholders’ investment and the Company’s
assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.
The Audit Committee is responsible for reviewing and monitoring the effectiveness of the internal financial control
systems and risk management systems on which the Company is reliant. These systems are designed to ensure
proper accounting records are maintained, that the financial information on which the business decisions are
made and which is issued for publication is reliable, and that the assets of the Company are safeguarded. Such
a system of internal financial controls can only provide reasonable and not absolute assurance against
misstatement or loss.
GOVERNANCE
45
Audit Committee Report (continued)
Internal Controls (continued)
In accordance with the guidance published in the ‘Turnbull Report’ by the FRC, the Audit Committee has reviewed
the Company’s internal control procedures. These internal controls are implemented by the Investment Adviser
and the Administrator.
The Audit Committee has performed reviews of the internal financial control systems and risk management
systems during the year. The Audit Committee is satisfied with the internal financial control systems of the
Company.
On behalf of the Audit Committee
Trina Le Noury
Audit Committee Chair
17 April 2025
GOVERNANCE
46
Management Engagement Committee Report
The Company has established a Management Engagement Committee (“MEC”) with formally delegated duties
and responsibilities within the written terms of reference (which are available from the Company’s website
www.fairoaksincome.com).
Chair and Membership
The MEC meets at least once a year. It comprises the entire Board and is chaired by Richard Burwood who took
over chairmanship from Claudio Albanese who retired on 31 December 2023. Only independent Directors serve
on the MEC and members of the MEC have no links with the Investment Adviser or any other service provider.
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.
The membership of the MEC and its terms of reference are kept under review.
Key Objectives
To review performance of all service providers (including the Investment Adviser).
Responsibilities
•
To annually review the performance, relationships and contractual terms of all service providers (including
the Investment Adviser);
•
To review the terms of the Investment Advisory Agreement from time to time to ensure that the terms thereof
conform with market and industry practice and remain in the best interests of Shareholders and make
recommendations to the Board on any variation to the terms of the Investment Advisory Agreement which
it considers necessary or desirable;
•
To recommend to the Board whether the continuing appointment of the Adviser is in the best interests of
the Company and Shareholders, and the reasons for this recommendation;
•
To monitor compliance by providers of other services to the Company with the terms of their respective
agreements from time to time;
•
To review and consider the appointment and remuneration of providers of services to the Company; and
•
To consider any points of conflict which may arise between the providers of services to the Company.
MEC Meetings
Only members of the MEC and the Company Secretary have the right to attend MEC meetings. However,
representatives of the General Partner, Investment Adviser and other service providers may be invited by the
MEC to attend meetings as and when appropriate.
Main Activities during the year
The MEC reviewed the performance, relationships and contractual terms of all service providers during the year.
Furthermore, the MEC reviewed the approaches to GDPR, Criminal Justice Act, Anti-bribery, cyber security, ESG,
discrimination and diversity & equality, amongst other matters, by its service providers.
Continued Appointment of the Investment Adviser and other Service Providers
The Board continually evaluates the Investment Adviser and other service providers, it reviews investment
performance at each Board meeting and a formal review of all service providers is conducted annually by the
MEC. The annual third-party service provider review process includes two-way feedback, which provides the
Board with an opportunity to understand the views, experiences and any significant issues encountered by service
providers during the year.
GOVERNANCE
47
Management Engagement Committee Report (continued)
Continued Appointment of the Investment Adviser and other Service Providers (continued)
As part of the Board’s annual performance evaluation, feedback is received on the quality of service and the
effectiveness of the working relationships with each of the Company’s key service providers.
Richard Burwood
Management Engagement Committee Chair
17 April 2025
48
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 2024, 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 2024, 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
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our 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 opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged from 2023):
The risk
Our response
Financial assets at fair value
through
profit
or
loss
(“Investments”)
US$217.47
million;
(2023
US$220.47 million)
Refer to pages 42 to 45 (Audit
Committee
Report),
note
2
(Material Accounting Policies),
note 3 (Use of Judgements and
Estimates) and note 6 (Financial
Assets at Fair Value Through
Profit or Loss)
Valuation of investments:
Basis:
The
Company
holds
investments in FOIF II LP
(“Master Fund II”) and FOMC III
LP (“Master Fund III”) (together
the “Master Funds”) which are
designated at fair value through
profit or loss and represents
92.25% of the Company’s net
assets.
Our audit procedures included:
Control evaluation:
We assessed the design and
implementation of the control over
the valuation of the Company’s
Investments.
49
The fair value of 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 investment portfolio
comprising
Mezzanine
and
Equity
Collateralised
Loan
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. Wollemi
is also invested principally into a
portfolio
of
Equity
CLO
positions.
The fair value of 52% of the
CLO’s held by the Master Funds
and Wollemi are determined
using indicative prices (“Price
Quotes”) obtained from the
independent
third
party
valuation
provider
(the
“Valuation Agent”) or other third
party market sources. 48% of
the fair value of CLO’s held by
the Master Funds and Wollemi
are
determined
by
the
Investment
Adviser
using
internally generated models.
Risk:
The valuation of the Company’s
Investments is considered a
significant area of our audit,
given that it represents the
majority of the net assets of the
Company.
Inherent
in
that
valuation
is
the
use
of
significant
estimates
and
judgements in determining the
Challenging
the
Company’s
investment
valuations,
including the use of our KPMG
valuation specialist, we:
•
Assessed
the
objectivity,
capability and competence of the
Valuation Agent engaged by the
Master Funds and Wollemi to
provide Price Quotes;
•
Held
discussions
with
the
Investment Adviser to understand
and assess the appropriateness of
the
valuation
methodologies
applied;
• 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;
— 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 statements and
agreed 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.
•
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; and
50
fair value of the underlying
CLOs.
•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 relevant
and reliable prices from external
pricing sources where available, or
through the use of fundamental
cash flow modelling sourcing key
inputs and assumptions used,
such as default rates, prepayment
rates, recovery rates and lag using
historical information or market
reports on the future development
of these parameters and agreed
the outcome to the prices used in
the valuation of these CLOs.
Assessing disclosures:
We
also
considered
the
Company’s disclosures in relation
to
use
of
estimates
and
judgements in determining the fair
value of Investments (Note 3), the
Company’s Investment valuation
policies (Note 2) and fair value
disclosures
(Note
6)
for
compliance
with
IFRS.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at $4.8 million, determined with reference to a
benchmark of net assets of $235.7 million of which it represents approximately 2% (2023: 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% (2023: 75%)
of materiality for the financial statements as a whole, which equates to $3.6 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
$240,000, 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.
51
Independent Auditor's Report to the Members of Fair Oaks Income
Limited (continued)
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.
Fraud and breaches of laws and regulations – ability to detect
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.
52
Independent Auditor's Report to the Members of Fair Oaks Income
Limited (continued)
Fraud and breaches of laws and regulations – ability to detect (continued)
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 noncompliance 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.
53
Independent Auditor's Report to the Members of Fair Oaks Income
Limited (continued)
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 40, 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.
54
Independent Auditor's Report to the Members of Fair Oaks Income
Limited (continued)
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.
Fiona Babbe
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
17 April 2025
FINANCIAL STATEMENTS
55
Statement of Comprehensive Income
For the year ended 31 December 2024
1 January 2024 to
31 December 2024
1 January 2023 to
31 December 2023
Notes
US$
US$
Revenue
Net gains on financial assets at fair value
through profit or loss
6
33,989,272
30,987,658
Interest income
7
732,373
1,117,468
Net foreign exchange gains
24,877
28,708
Total revenue
34,746,522
32,133,834
Expenses
Investment advisory fees
8
151,933
211,438
Directors' fees and expenses
8
218,843
218,274
Legal and professional fees
11,039
29,969
Audit and interim review fees
192,655
161,709
Registrar fees
62,704
67,704
Listing fees
21,104
12,768
Administration fees
8
81,991
123,061
Broker fees
148,526
147,995
Other expenses
192,163
175,799
Total expenses
1,080,958
1,148,717
Profit and total comprehensive income for
the year
33,665,564
30,985,117
Basic and diluted earnings per 2021 Share
11
0.0771
0.0685
Basic and diluted earnings per Realisation
Share
11
0.0888
0.0769
All items in the above statement are derived from continuing operations.
The accompanying notes on pages 59 to 92 form an integral part of the financial statements.
FINANCIAL STATEMENTS
56
Statement of Changes in Shareholders' Equity
For the year ended 31 December 2024
Note
Share
capital
Share
capital
Retained
earnings
Retained
earnings
Total
Equity
Realisation
Shares
2021
Shares
Realisation
Shares
2021
Shares
US$
US$
US$
US$
US$
At 1 January 2024
51,996,697
372,680,688
(23,472,768)
(157,264,444)
243,940,173
Total comprehensive income:
Profit for the year
-
-
4,278,530
29,387,034
33,665,564
Total comprehensive profit for the year
-
-
4,278,530
29,387,034
33,665,564
Transactions with Shareholders:
Dividends declared during the year
4
-
-
(3,890,863)
(30,500,645)
(34,391,508)
Realisation Share redemptions paid during the year
10
(4,950,050)
-
-
-
(4,950,050)
Treasury shares issued
10
-
490,101
-
-
490,101
Share buy-backs
10
-
(3,016,924)
-
-
(3,016,924)
Total transactions with Shareholders
(4,950,050)
(2,526,823)
(3,890,863)
(30,500,645)
(41,868,381)
At 31 December 2024
47,046,647
370,153,865
(23,085,101)
(158,378,055)
235,737,356
Note
Realisation
Shares
2021
Shares
Realisation
Shares
2021
Shares
US$
US$
US$
US$
US$
At 1 January 2023
Total comprehensive income:
55,251,707
383,148,853
(23,297,298)
(152,757,973)
262,345,289
Profit for the year
-
-
4,190,991
26,794,126
30,985,117
Total comprehensive profit for the year
-
-
4,190,991
26,794,126
30,985,117
Transactions with Shareholders:
Dividends declared during the year
4
-
-
(4,366,461)
(31,300,597)
(35,667,058)
Realisation Share redemptions paid during the year
10
(3,255,010)
-
-
-
(3,255,010)
Share buy-backs
10
-
(10,468,165)
-
-
(10,468,165)
Total transactions with Shareholders
(3,255,010)
(10,468,165)
(4,366,461)
(31,300,597)
(49,390,233)
At 31 December 2023
51,996,697
372,680,688
(23,472,768)
(157,264,444)
243,940,173
The accompanying notes on pages 59 to 92 form an integral part of the financial statements.
FINANCIAL STATEMENTS
57
Statement of Financial Position
As at 31 December 2024
31 December 2024
31 December 2023
Notes
US$
US$
Assets
Cash and cash equivalents
18,520,562
25,170,093
Other receivables and prepayments
12
14,350
593,446
Financial assets at fair value through profit
or loss
6
217,473,364
220,466,340
Total assets
236,008,276
246,229,879
Liabilities
Trade and other payables
13
270,920
2,289,706
Total liabilities
270,920
2,289,706
Net assets
235,737,356
243,940,173
Equity
Retained earnings
(181,463,156)
(180,737,212)
Share capital
417,200,512
424,677,385
Total equity
235,737,356
243,940,173
Net Assets attributable to 2021
Shareholders
211,775,810
215,416,244
Number of 2021 Shares
10
377,255,540
382,010,069
Net asset value per 2021 Share
0.5614
0.5638
Net Assets attributable to Realisation
Shareholders
23,961,546
28,523,929
Number of Realisation Shares
10
41,086,020
49,906,358
Net asset value per Realisation Share
0.5832
0.5715
The Financial Statements on pages 55 to 92 were approved and authorised for issue by the Board of Directors
on 17 April 2025 and signed on its behalf by:
Trina Le Noury
Richard Burwood
Director
Chair
The accompanying notes on pages 59 to 92 form an integral part of the financial statements.
FINANCIAL STATEMENTS
58
Statement of Cash Flows
For the year ended 31 December 2024
Notes
2024
US$
2023
US$
Cash flows from operating activities
Profit for the year
33,665,564
30,985,117
Adjustments for:
Net gains on financial assets at fair value through profit
or loss
6
(33,989,272)
(30,987,658)
Net foreign exchange gains
(24,877)
(28,708)
(348,585)
(31,249)
Decrease / (Increase) in receivables and prepayments
126,662
(23,023)
Increase in trade and other payables
115,201
43,175
Income distributions received from Master Fund II
5,761,669
6,860,431
Income distributions received from Master Fund III
37,324,493
42,037,951
Capital distributions received from Master Fund II
6
3,096,786
370,269
Drawdowns paid to Master Funds
6
(8,748,266)
(4,698,064)
Net cash flow from operating activities
37,327,960
44,559,490
Cash flows used in financing activities
Realisation Share redemptions paid
(7,050,040)
(1,155,020)
Share buy-backs
(3,050,921)
(10,434,169)
Treasury shares issued
10
490,101
-
Dividends paid during the period
4
(34,391,508)
(35,667,058)
Net cash flow used in financing activities
(44,002,368)
(47,256,247)
Net decrease in cash and cash equivalents
(6,674,408)
(2,696,757)
Cash and cash equivalents at beginning of the year
25,170,093
27,838,142
Effect of foreign exchange rate changes during the year
24,877
28,708
Cash and cash equivalents at end of the year
18,520,562
25,170,093
The accompanying notes on pages 59 to 92 form an integral part of the financial statements.
FINANCIAL STATEMENTS
59
Notes to the Financial Statements
For the year ended 31 December 2024
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 12 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 2030 and an investment
objective and policy substantially similar to that of Master Fund II.
At 31 December 2024, the Company has 41,086,020 Realisation Shares (31 December 2023: 49,906,358
Realisation Shares) and 377,255,540 2021 Shares (31 December 2023: 382,010,069 2021 Shares) in issue.
During the year ended 31 December 2024 the Company bought back 5,603,189 2021 Shares for
US$3,016,924 and redeemed 8,820,338 Realisation Shares for US$4,950,050. The Realisation Shares
invest solely into the Master Fund II and the 2021 Shares invest solely into the Master Fund III. At 31
December 2024, the Company had direct holdings of 9.59% (31 December 2023: 9.59%) in the Master Fund
II and 95.61% (31 December 2023: 95.43%) holding in Master Fund III, which in turn had a holding of 62.21%
(31 December 2023: 62.21%) in the Master Fund II. Together, the Company held a direct and indirect holding
of 69.06% (31 December 2023: 68.96%) in the Master Fund II.
The Master Funds
At 31 December 2024, the Master Fund II had six limited partners (31 December 2023: six limited partners),
including Fair Oaks Founder II LP, a related entity. At 31 December 2024, the Master Fund III had three
limited partners (31 December 2023: three limited partners), including Fair Oaks Founder VI LP. The General
Partner of the Master Funds is Fair Oaks Income Fund (GP) Limited (the “General Partner” or “GP”).
Cycad and Wollemi
In the prior year, the Master Fund II held an investment in Cycad Investments LP (“Cycad”). Cycad was a
Limited Partnership registered in the United States of America on 2 June 2017. Aligned with the Company’s
investment policy, Cycad also invested into Collateral Loan Obligations (“CLOs”). Cycad and Fair Oaks
Founder III were both terminated during the current year. On 9 March 2021, a new Guernsey limited
partnership was established called Wollemi Investments I LP (Wollemi”) also investing in CLOs. At 31
December 2024, the Master Fund II had direct holdings of 76.94% (31 December 2023: 89.43%) and Master
Fund III had direct holdings of 14.82% (31 December 2023: 10.57%) in Wollemi.
FINANCIAL STATEMENTS
60
Notes to the Financial Statements
For the year ended 31 December 2024
1. GENERAL INFORMATION (continued)
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 Funds and Wollemi is Fair Oaks Income Fund (GP) Limited (the “General
Partner” or “GP”). The Master Funds’ invest in portfolios consisting primarily of CLOs.
2. MATERIAL 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, Disclosure Guidance and
Transparency Rules of the UK’s Financial Conduct 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 required to prepare
consolidated Financial Statements under IFRS.
Going Concern
The Directors have assessed the financial position of the Company as at 31 December 2024 and the factors
that may impact its performance (including the potential impact on markets and supply chains of changes in
US trade policy) in the forthcoming year.
Changes in US trade policy
The imposition of import tariffs by the new US administration is likely to have a negative impact on the
profitability of some US loan issuers, which will face higher input costs, and some European loan issuers,
who may experience lower export sales to the US. The precise impacts are difficult to assess given the
uncertainty over US policy and the complexity of international supply chains.
The Company’s Investment Adviser is closely monitoring the situation and its early assessment is that the
Master Funds’ portfolios’ exposure to the imposition of US tariffs is relatively limited and thus the impact on
the Company’s performance will not be significant.
FINANCIAL STATEMENTS
61
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
Changes in US trade policy (continued)
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.
New Accounting Standards and interpretations adopted in the reporting period
The following standards and interpretations have been applied where relevant in these Financial Statements:
• Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or
Noncurrent, 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.
The adoption of these standards has not had a material impact on the Financial Statements of the Company.
New Accounting Standards and interpretations applicable to future reporting periods
•
Amendments to IFRS 7 Financial Instruments: Disclosures: Amendments to the Classification and
Measurement of Financial Instruments, Annual Improvements to IFRS Accounting Standards - Volume
11 - Gain or loss on derecognition and Contracts Referencing Nature-dependent Electricity, effective for
periods commencing 1 January 2026.
•
Amendments to IFRS 9 Financial Instruments: Amendments to the Classification and Measurement of
Financial Instruments, Annual Improvements to IFRS Accounting Standards - Volume 11 (Derecognition
of lease liabilities and Transaction price) and Contracts Referencing Nature-dependent Electricity,
effective for periods commencing 1 January 2026.
•
IFRS 10 Consolidated Financial Statements: Annual Improvements to IFRS Accounting Standards -
Volume 11 - Determination of a ‘de facto agent’, effective for periods commencing 1 January 2026.
•
IFRS 18 Presentation and Disclosure in Financial Statements: This Standard replaces IAS 1 Presentation
of Financial Statements. It carries forward many requirements from IAS 1 unchanged, effective for periods
commencing 1 January 2027. The new accounting standard introduces the following key new
requirements:
-
Entities are required to classify all income and expenses into five categories in the statement of profit
and loss, namely operating, investing, financing, discontinued operations and income tax categories.
Entities are also required to present a newly-defined operating profit subtotal. Entities net profit will
not change as a result of applying IFRS 18.
-
Management-defined performance measures (MPMs) are disclosed in a single note in the financial
statements.
-
Enhanced guidance is provided on how to group information in the financial statements.
-
All entities are required to use the operating profit subtotal as the starting point for the statement of
cash flows when presenting operating cash flows under the indirect method.
-
The Company is still in the process of assessing the impact of the new accounting standard,
particularly with respect to the structure of the Company’s statement of profit or loss, the statement
of cash flows and the additional disclosures required for MPMs.
FINANCIAL STATEMENTS
62
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
New Accounting Standards and interpretations applicable to future reporting periods (continued)
•
IAS 7 Statement of Cash Flows: Annual Improvements to IFRS Accounting Standards - Volume 11 - Cost
method, effective for periods commencing 1 January 2026.
•
IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability, effective for periods
commencing 1 January 2025.
These standards, amendments or interpretations, except for IFRS18, 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.
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”).
FINANCIAL STATEMENTS
63
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
Financial Instruments (continued)
Financial assets – Classification (continued)
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: this includes investments in the Master Funds and derivatives. These financial
assets are managed and their performance is evaluated, on a fair value basis, with frequent sales taking
place.
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.
Financial liabilities – Classification
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability at amortised
cost includes trade and other payables and distributions received in advance.
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.
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.
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.
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.
FINANCIAL STATEMENTS
64
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
Financial Instruments (continued)
Financial assets and liabilities - Recognition, measurement and gains and losses (continued)
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. Any gain or loss on derecognition is also recognised in profit or loss.
Investments in the Master Funds
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 to 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 the Master Funds’
investments have documented maturity/redemption dates or will be sold if other investments with better
risk/reward profile are identified, the Board consider that this demonstrates a clear exit strategy.
The Master Funds 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.
FINANCIAL STATEMENTS
65
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
Investments in the Master Funds (continued)
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. The Company has
determined that the fair value of Wollemi is Wollemi’s Net Asset Value (NAV”).
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 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. 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.
FINANCIAL STATEMENTS
66
Notes to the Financial Statements
For the year ended 31 December 2024
2. MATERIAL ACCOUNTING POLICIES (continued)
Segmental Reporting (continued)
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`s opinion, the Company is engaged in a single segment of business, being investments into the
Master Funds, 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 revenue from external customers, nor holds any non-current assets, in any
geographical area other than Guernsey.
3. USE OF JUDGEMENTS AND ESTIMATES
The preparation of Financial Statements in accordance with IFRS requires the Board 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.
Fair value hierarchy
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 Funds at fair value. This determination involves a degree of judgement (see Note
2). The judgement is also applied to the underlying investments that are treated as subsidiaries.
For Level 2 and Level 3 financial assets, the determination of what inputs are "observable" requires judgement
by the directors. Information about assumptions is included in Note 6 to the Financial Statements.
Estimates
Fair Value
The Company records its investments in the Master Funds 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.
FINANCIAL STATEMENTS
67
Notes to the Financial Statements
For the year ended 31 December 2024
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
a proportionate share of the expenses of the Company.
The Company declared the following dividends per 2021 Share during the year ended 31 December 2024:
Dividend
rate per 2021
Share
Net dividend
payable
Period to
Payment date
cents
US$
Record date
Ex-dividend
date
29 December
2023
2 March
2024
2.0
7,669,874
1 March
2024
29 February
2024
28 March
2024
28 June
2024
2.0
7,646,547
31 May
2024
30 May
2024
28 June
2024
9 September
2024
2.0
7,638,517
16 August
2024
15 August
2024
30 September
2024
13 December
2024
2.0
7,545,707
22 November
2024
21 November
2024
30,500,645
The Company declared the following dividends per Realisation Share during the year ended 31 December
2024:
Dividend rate
per Realisation
Share
Net dividend
payable
Period to
Payment date
cents
US$ Record date
Ex-dividend
date
29 December
2023
2 March
2024
2.0
998,127
1 March
2024
29 February
2024
28 March
2024
28 June
2024
2.0
998,127
31 May
2024
30 May
2024
28 June
2024
9 September
2024
2.0
998,127
16 August
2024
15 August
2024
30 September
2024
13 December
2024
2.0
896,482
22 November
2024
21 November
2024
3,890,863
FINANCIAL STATEMENTS
68
Notes to the Financial Statements
For the year ended 31 December 2024
4. DIVIDENDS (continued)
The Company declared the following dividends per 2021 Share during the year ended 31 December 2023:
Dividend rate
per 2021 Share
Net dividend
payable
Period to
Payment date
cents
US$ Record date
Ex-dividend
date
31 December
2022
31 March
2023
2.0
7,999,885
3 March
2023
2 March
2023
31 March
2023
30 June
2023
2.0
7,841,901
2 June
2023
1 June
2023
30 June
2023
21 September
2023
2.0
7,767,875
25 August
2023
24 August
2023
30 September
2023
15 December
2023
2.0
7,690,936
17 November
2023
16 November
2023
31,300,597
The Company declared the following dividends per Realisation Share during the year ended 31 December
2023:
Dividend rate
per
Realisation
Share
Net dividend
payable
Period to
Payment date
cents
US$
Record date
Ex-dividend
date
31 December
2022
31 March
2023
2.0
1,111,656
3 March
2023
2 March
2023
31 March
2023
30 June
2023
2.0
1,111,569
2 June
2023
1 June
2023
30 June
2023
21 September
2023
2.0
1,071,618
25 August
2023
24 August
2023
30 September
2023
15 December
2023
2.0
1,071,618
17 November
2023
16 November
2023
4,366,461
At 31 December 2024, the Company’s retained earnings include unrealised losses on financial assets of
US$200,878,401 (31 December 2023: US$192,233,945) (see Note 6). Gross income from investments
excludes these unrealised losses which are capital in nature.
The default currency payment for dividends is US Dollars. However, shareholders can elect to receive their
dividends in British Pounds Sterling (“Sterling”) by registering under the Company’s Dividend Currency
Election. The rate per 2021 Share and Realisation Share to be used to pay shareholders who elected to
receive their dividend in Sterling will be announced on the London Stock Exchange each month prior to the
payment date.
Under Guernsey law, companies can pay dividends in excess of accounting profit provided they satisfy the
solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether a
company is able to pay its debts when they fall due, and whether the value of a company’s assets is greater
than its liabilities. The Company passed the solvency test for each dividend paid. Total dividends payable as
at 31 December 2024 were US$nil (31 December 2023: US$nil).
FINANCIAL STATEMENTS
69
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT
The Board 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.
Interest Rate Risk
Through its investment in the Master Funds, the Company is exposed to interest rate risk via the positions
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 in the Master Funds, which invest in
Subordinated ("equity") and Mezzanine notes of CLOs, both directly and through their investments in Wollemi.
The Mezzanine tranches pay floating-rate interest, at a spread over USD SOFR or Euribor. The Subordinated
CLO notes generate income based on the differential between the interest on the CLOs' floating-rate loan
assets and the CLOs' floating-rate liabilities, so have partial exposure to USD or Euro floating interest rates.
Because the Master Funds do not hold fixed-rate assets, they do not have significant exposure to the risk of
asset price movements due to changing interest rates expectations but the floating-rate nature of their assets
exposes the Master Funds to potential variations in income over time due to changes in actual interest rates.
FINANCIAL STATEMENTS
70
Notes to the Financial Statements
For the year ended 31 December 2024
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 2024 and 31 December
2023:
31 December 2024
31 December 2023
Master
Fund III1
Master
Fund II2
Master
Fund III1
Master
Fund II2
US$
US$
US$
US$
Investments with exposure to a
floating interest rate
164,561,437
18,278,538
185,709,674
27,512,041
Financial assets at fair value
through profit or loss
164,561,437
18,278,538
185,709,674
27,512,041
1 Shows the Company’s proportionate direct share in the Master Fund III at 95.61% (31 December 2023: 95.43%) 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 2023: 9.59%) through Realisation Shares investment
only on a whole look-through portfolio basis.
The following table shows the Board’s 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.
31 December 2024
31 December 2023
Possible
reasonable
change in rate
Effect on net assets
and profit or loss
Possible
reasonable
change in rate
Effect on net assets
and profit or loss
US$
US$
-1%
(2,041,883)
-1%
(706,011)
1%
2,041,883
1%
706,115
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
maybe affected, favourably or unfavourably, by fluctuations in currency rates which, if unhedged, could
potentially 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.
FINANCIAL STATEMENTS
71
Notes to the Financial Statements
For the year ended 31 December 2024
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:
31 December 2024
31 December 2023
Master
Fund III
Master
Fund II
Master
Fund III
Master
Fund II
US$
US$
US$
US$
EUR Exposure
Cash and cash equivalents
153,005
124,273
49,899
7,131
Other receivables
765,922
418,282
-
-
Derivatives at fair value through
profit or loss
(18,354,859)
(9,180,387)
(74,537,298)
(12,044,451)
Financial assets at fair value through
profit and loss
18,579,451
9,155,065
87,889,988
11,872,110
Net EUR Exposure
1,143,519
517,233
13,402,589
(165,210)
31 December 2024
31 December 2023
Master
Fund III
Master
Fund II
Master
Fund III
Master
Fund II
US$
US$
US$
US$
GBP Exposure
Cash and cash equivalents
324
85,958
676,139
109,256
Trade and other payables
(70,901)
(8,356)
(154,302)
(10,601)
Net GBP Exposure
(70,577)
77,602
521,837
98,655
NET EXPOSURE
1,072,942
594,835
13,924,426
(66,555)
Possible change
in exchange rate
31 December 2024
net exposure
31 December 2024 effect
on net assets and profit
or loss (if unhedged)
US$
US$
EUR / US Dollar
+/-10%
1,660,753
(-/+) 166,075
GBP / US Dollar
+/-10%
7,026
(-/+) 703
Possible change
in exchange rate
31 December 2023
net exposure
31 December 2023 effect
on net assets and profit
or loss (if unhedged)
US$
US$
EUR / US Dollar
+/-10%
13,237,379
(-/+) 1,323,738
GBP / US Dollar
+/-10%
620,492
(-/+) 62,049
The sensitivity rate of 10% (31 December 2023: 10%) is regarded as reasonable due to the actual volatility
over the last year of US Dollar against both Euro and Sterling.
FINANCIAL STATEMENTS
72
Notes to the Financial Statements
For the year ended 31 December 2024
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 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 2023: 25%), the impact on the NAV of the Company would be +/- US$48,376,321 (31 December
2023: US$48,117,048).
If the value of the Company’s investment in the Master Fund II were to increase or decrease by 25% (31
December 2023: 25%), the impact on the NAV of the Company would be +/- US$5,737,971 (31 December
2023: US$6,737,592).
At 31 December 2024, the sensitivity rate of 25% (31 December 2023: 25%) is regarded as reasonable due
to the actual market price volatility experienced on the Master Funds’ CLO investments during the year.
Credit and Counterparty Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company, the Master Funds or a vehicle in which the Master
Funds invest, resulting in a financial loss to the Company. Credit risk arises principally from debt securities
held, and also from derivative financial assets and cash and cash equivalents. For risk management
reporting purposes, the Company considers and aggregates all elements of credit risk exposure (such as
individual obligation default risk, country risk and sector risk).
The Company’s policy on credit risk mirrors that of the Master Funds, which is to minimise its exposure to
counterparties with perceived higher risk of default by dealing only with counterparties that meet the credit
standards set out in the Company’s prospectus.
The table below analyses the Company’s maximum exposure to credit risk in relation to the components of
the Statement of Financial Position.
31 December
2024
31 December
2023
US$
US$
Cash and cash equivalents
18,520,562
25,170,093
Other receivables (excluding prepayments)
-
572,922
Financial assets at fair value through profit or loss
217,473,364
220,466,340
235,993,926
246,209,355
At 31 December 2024, there were no financial assets past due or impaired (31 December 2023: none).
At 31 December 2024, the cash and cash equivalents and other assets of the Company, excluding its
investments into the Master Funds, and substantially all of the assets of the Master Fund II are held by BNP
Paribas Securities Services S.C.A. (the “Custodian”).
FINANCIAL STATEMENTS
73
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
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 and US Bank.
The long-term rating of the Custodian as at 31 December 2024 was A1 as rated by Moody’s (31 December
2023: A2) and A+ by Standard & Poor’s (31 December 2023: A+). The long-term rating of US Bank as at
31 December 2024 was A2 (31 December 2023: A2) as rated by Moody’s and A+ (31 December 2023: A+)
by Standard & Poor’s.
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 2024 and 31
December 2023 are summarised in the table below. The Company’s credit risk is monitored on a quarterly
basis by the Board.
The Master Funds have diversified their exposure to industry sectors. The top 10 are as follows:
31 December 2024
31 December 2023
Industry48
%
%
Healthcare & Pharmaceuticals
13.0
12.3
High Tech Industries
10.7
9.2
Services: Business
9.7
8.9
Banking, Finance, Insurance & Real Estate
6.6
7.0
Telecommunications
6.0
5.5
Services: Consumer
5.6
5.0
Construction & Building
5.2
4.7
Chemicals, Plastics & Rubber
4.9
4.6
Beverage, Food & Tobacco
4.7
4.4
Hotel, Gaming & Leisure
3.5
3.8
69.9
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 2024 and 31 December 2023 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 2024 and 31 December 2023.
48 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.
FINANCIAL STATEMENTS
74
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
The geographical breakdown of the underlying CLO investments is as follows:
31 December 2024
31 December 2023
Master
Fund III
Master
Fund II
Master
Fund III
Master
Fund II
US$
US$
US$
US$
United States of America
60,428,813
9,558,158
105,173,410
16,594,561
Europe
77,705,913
9,436,927
84,854,252
11,448,838
Financial assets at fair value
through profit or loss
138,134,726
18,995,085
190,027,662
28,043,399
31 December
2024
31 December
2023
Master Funds
Master Funds
Country 49
%
%
United States of America
54.2
65.7
France
12.8
8.7
United Kingdom
9.4
6.2
Netherlands
5.6
4.1
Germany
4.4
3.3
Spain
3.4
2.3
Canada
2.6
4.1
Italy
2.2
1.2
Luxembourg
1.9
1.5
Sweden
1.5
-
Switzerland
1.2
1.6
Canada
0.8
1.3
Total
100
100
The table below summarises the Master Funds’ underlying portfolio concentrations as of 31 December
2024 and 31 December 2023:
Maximum portfolio
holdings of a single asset
% of total portfolio
Average portfolio
holdings % of total
portfolio
31 December 2024
12.40%
2.71%
31 December 2023
8.63%
2.32%
49 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.
FINANCIAL STATEMENTS
75
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT (continued)
Credit and Counterparty Risk (continued)
The table below summarises the Master Funds’ portfolio by assets class and portfolio ratings as at 31
December 2024 and 31 December 2023:
31 December 2024
31 December 2023
Master
Fund III
Master
Fund II
Master
Fund III
Master
Fund II
US$
US$
US$
US$
By asset class
Equity Subordinated CLO notes
116,917,033
16,135,441
156,452,272
23,344,681
Mezzanine CLO notes
21,217,693
2,859,644
30,497,949
4,280,957
Limited Partnerships
-
-
3,077,441
417,761
138,134,726
18,995,085
190,027,662
28,043,399
The breakdown of the underlying CLO portfolios by rating is as follows:
31 December 2024
31 December 2023
Rating 50
%
%
B
37.0
30.4
B-
21.3
23.7
B+
14.3
17.3
BB-
8.2
9.9
CCC+
5.1
4.5
NA
3.6
0.8
BB
4.4
7.0
CCC
1.7
1.5
Other
1.5
0.5
CCC-
1.3
0.3
BB+
1.0
2.4
CC
0.4
0.6
BBB-
0.2
1.1
Total
100
100
Activities undertaken by the Company and the Master Funds 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.
50 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.
FINANCIAL STATEMENTS
76
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT (continued)
Liquidity Risk (continued)
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 instruments include indirect 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.
The Company’s overall liquidity risk is monitored on a quarterly basis by the Board. 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.
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. 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’s 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”).
FINANCIAL STATEMENTS
77
Notes to the Financial Statements
For the year ended 31 December 2024
5. FINANCIAL RISK MANAGEMENT (continued)
Operational Risk (continued)
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’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the Company. The Company’s capital is represented by
the 2021 Shares and Realisation Shares. Capital is managed in accordance with the investment policy, in
pursuit of the Company’s investment objectives.
FINANCIAL STATEMENTS
78
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
1 January 2024 to 31 December 2024
2021
Shares
Realisation
Shares
Total
Company
US$
US$
US$
Cost of financial assets at fair value through profit
or loss at the start of the year
358,467,789
54,232,496
412,700,285
Capital distributions received from Master Fund III
/ Master Fund II
-
(3,096,786)
(3,096,786)
Drawdowns paid to Master Fund III / Master Fund
II
8,748,266
-
8,748,266
Cost of financial assets at fair value through profit
or loss at the end of the year
367,216,055
51,135,710
418,351,765
Net unrealised losses on financial assets at the
end of the year
(173,704,593)
(27,173,808)
(200,878,401)
Financial assets at fair value through profit or
loss at the end of the year
193,511,462
23,961,902
217,473,364
Movement in net unrealised loss during the year
(7,704,993)
(939,463)
(8,644,456)
Income distributions declared by Master Fund II
-
5,328,887
5,328,887
Income distributions declared by Master Fund III
37,304,841
-
37,304,841
Net gains on financial assets at fair value
through profit or loss
29,599,848
4,389,424
33,989,272
1 January 2023 to 31 December 2023
2021
Shares
Realisation
Shares
Total
Company
US$
US$
US$
Cost of financial assets at fair value through profit
or loss at the start of the year
353,769,725
54,602,765
408,372,490
Capital distributions received from Master Fund III
/ Master Fund II
-
(370,269)
(370,269)
Drawdowns paid to Master Fund III / Master Fund
II
4,698,064
-
4,698,064
Cost of financial assets at fair value through profit
or loss at the end of the year
358,467,789
54,232,496
412,700,285
Net unrealised losses on financial assets at the
end of the year
(165,999,600)
(26,234,345)
(192,233,945)
Financial assets at fair value through profit or
loss at the end of the year
192,468,189
27,998,151
220,466,340
Movement in net unrealised loss during the year
(15,867,814)
(2,978,096)
(18,845,910)
Income distributions declared by Master Fund II
-
7,280,882
7,280,882
Income distributions declared by Master Fund III
42,552,686
-
42,552,686
Net gains on financial assets at fair value
through profit or loss
26,684,872
4,302,786
30,987,658
FINANCIAL STATEMENTS
79
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
As at 31 December 2024, the Company had a 95.61% (31 December 2023: 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 (31 December 2023:62.21%) and 14.82% in Wollemi (31 December 2023: 10.57%). The
Company also retained a direct holding of 9.59% (31 December 2023: 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 Funds’ financial assets at fair
value through profit or loss to the Company’s financial assets at fair value through profit or loss:
31 December 2024
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
By asset class
Financial assets at fair value through
profit or loss
168,902,188
19,007,239
187,909,427
Add: Other net current assets
24,609,274
4,954,663
29,563,937
Total financial assets at fair value
through profit or loss
193,511,462
23,961,902
217,473,364
31 December 2023
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
By asset class
Financial assets at fair value through
profit or loss
189,698,427
28,053,512
217,751,939
Add: Other net current assets /
(liabilities)
2,769,762
(55,361)
2,714,401
Total financial assets at fair value
through profit or loss
192,468,189
27,998,151
220,466,340
FINANCIAL STATEMENTS
80
Notes to the Financial Statements
For the year ended 31 December 2024
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:
1 January 2024 to 31 December 2024
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
Net unrealised losses on investments at the
beginning of the year
(165,999,600)
(26,234,345)
(192,233,945)
Investment income
497,436
(2,347,106)
(1,849,670)
Income distributions declared by
Master Fund II
35,164,802
-
35,164,802
Unrealised (losses) / gains on financial assets
at fair value through profit or loss
(6,472,735)
6,861,097
388,362
Net gains on derivative financial instruments
and foreign exchange
578,889
781,832
1,360,721
Net realised gains / (losses) on financial
assets at fair value through profit or loss
199,355
(717,007)
(517,652)
Other income
8,055
33,901
41,956
Expenses
(379,545)
(242,903)
(622,448)
Income distributions declared during the year
(37,301,250)
(5,309,277)
(42,610,527)
Net unrealised losses on investments at the
end of the year
(173,704,593)
(27,173,808)
(200,878,401)
1 January 2023 to 31 December 2023
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
Net unrealised losses on investments at the
beginning of the year
(150,131,786)
(23,256,249)
(173,388,035)
Investment income
366,665
3,291,631
3,658,296
Income distributions declared by
Master Fund II
45,125,393
-
45,125,393
Unrealised gains on financial assets at fair
value through profit or loss
(18,455,519)
1,386,003
(17,069,516)
Net gains on derivative financial instruments
and foreign exchange
(30,137)
(208,153)
(238,290)
Other income
5,736
77,939
83,675
Expenses
(283,659)
(271,879)
(555,538)
Income distributions declared during the year
(42,596,293)
(7,253,637)
(49,849,930)
Net unrealised losses on investments at the
end of the year
(165,999,600)
(26,234,345)
(192,233,945)
IFRS 13 requires that a fair value hierarchy be established that prioritises the inputs to valuation techniques
used to measure fair value.
FINANCIAL STATEMENTS
81
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
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, distributions receivable, dividends payable and other payables) measured at fair
value:
31 December 2024
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Financial assets at fair value through
profit or loss
-
-
217,473,364
217,473,364
Total
-
-
217,473,364
217,473,365
31 December 2023
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Financial assets at fair value through
profit or loss
-
-
220,466,340
220,466,340
Total
-
-
220,466,340
220,466,340
The investments in the Master Funds, which are fair valued at each reporting date, have been classified within
Level 3 as they are not traded and contain unobservable inputs.
FINANCIAL STATEMENTS
82
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
The following table presents the movement in Level 3 instruments:
1 January 2024 to
31 December 2024
1 January 2023 to
31 December 2023
US$
US$
Opening Balance
220,466,340
234,984,455
Return of capital from Master Funds
(3,096,786)
(370,269)
Drawdown paid to Master Funds
8,748,266
4,698,064
Movement in net unrealised loss during the year
(8,644,456)
(18,845,910)
Closing Balance
217,473,364
220,466,340
Transfers between Level 1, 2 and 3
There have been no transfers between levels during the year ended 31 December 2024 or for the year ended
31 December 2023. Transfers between levels of the fair value hierarchy are recognised at the end of the
reporting period during which the change has occurred.
Look-through financial information: Master Funds 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 Funds’ financial assets and derivatives (by class, excluding cash and cash
equivalents, other receivables and prepayments, distributions payable, carried interest payable and trade and
other payables) measured at fair value:
31 December 2024
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Master Fund III
Financial assets at fair value through
profit or loss, excluding derivatives
-
1,532,954
166,823,262
168,356,216
Derivatives at fair value through profit or
loss
-
545,972
-
545,972
Total
-
2,078,926
166,823,262
168,902,188
31 December 2023
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Master Fund III
Financial assets at fair value through
profit or loss
-
3,446,225
186,252,202
189,698,427
Total
-
3,446,225
186,252,202
189,698,427
FINANCIAL STATEMENTS
83
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Look-through financial information: Master Funds fair value hierarchy information (continued)
31 December 2024
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Master Fund II
Financial assets at fair value through
profit or loss, excluding derivatives
-
249,357
18,463,867
18,713,224
Derivatives at fair value through profit or
loss
-
294,015
-
294,015
Total
-
543,372
18,463,867
19,007,239
31 December 2023
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
Master Fund II
Financial assets at fair value through
profit or loss
-
612,985
27,440,527
28,053,512
Derivatives at fair value through profit or
loss
-
(346,858)
-
(346,858)
Total
-
266,127
27,440,527
27,706,654
The following table summarises the valuation methodologies used for the Company’s investments categorised
in Level 3 as at 31 December 2024:
Fair Value
Methodology
Unobservable
inputs
Ranges
Security
US$
Master Fund III
193,511,462
NAV
Zero % discount
N/A
Master Fund II
23,961,902
NAV
Zero % discount
N/A
217,473,364
The following table summarises the valuation methodologies used for the Company’s investments categorised
in Level 3 as at 31 December 2023:
Fair Value
Methodology
Unobservable
inputs
Ranges
Security
US$
Master Fund III
192,468,189
NAV
Zero % discount
N/A
Master Fund II
27,998,151
NAV
Zero % discount
N/A
220,466,340
FINANCIAL STATEMENTS
84
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Look-through financial information: Master Funds’ Level 3 information
The following table summarises the Master Funds’ sensitivity to changes in significant unobservable inputs
used in the valuation of the Master Fund's investments categorised in Level 3 as at 31 December 2024. The
Master Fund II has engaged an independent third party to provide valuations for their CLO investments.
Accordingly, prices provided by a third party agent are considered as significant unobservable inputs for the
purposes of sensitivity analysis. NAV is considered to be a significant unobservable input for Limited
Partnerships.
Asset Class
Fair Value
US$
Unobservable
inputs
Ranges
Average
Sensitivity to changes in
significant unobservable
inputs
Master Fund III
Limited Partnerships
Master Fund
II
149,719,192
Zero %
discount to
NAV
N/A
N/A
25% increase / decrease will
have a fair value impact of
+ / - US$37,429,798
Wollemi
17,104,070
Zero %
discount to
NAV
N/A
N/A
25% increase / decrease will
have a fair value impact of
+ / -US$4,276,018
166,823,262
Asset
Class
Fair Value
US$
Unobservable
inputs
Ranges
Average
Sensitivity to changes in
significant unobservable
inputs
Master Fund II
CLOs
United
States of
America
9,558,158
Prices
provided by a
third party
agent
US$0.066 -
US$0.979
US$0.374
25% increase / decrease
will have a fair value
impact of
+ / - US$2,389,540
Limited Partnerships
Wollemi
8,905,709
Zero %
discount to
NAV
N/A
N/A
25% increase/decrease
will have a fair value
impact of
+/- US$ 2,226,427
18,463,867
FINANCIAL STATEMENTS
85
Notes to the Financial Statements
For the year ended 31 December 2024
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)
Look-through financial information: Master Funds’ Level 3 information
The following table summarises the Master Funds’ sensitivity to changes in significant unobservable inputs
used in the valuation of the Master Funds’ investments categorised in Level 3 as at 31 December 2023. The
Master Fund II has engaged an independent third party to provide valuations for their CLO investments.
Accordingly, prices provided by a third party agent is considered as significant unobservable input for the
purposes of sensitivity analysis. NAV is considered to be a significant unobservable input for Limited
Partnerships.
Asset Class
Fair Value
US$
Unobservable
inputs
Ranges
Average
Sensitivity to changes in
significant unobservable
inputs
Master Fund III
Limited Partnerships
Master Fund
II
151,252,145
Zero %
discount to
NAV
N/A
N/A
25% increase/decrease
will have a fair value impact of
+/- US$43,316,397
Wollemi
17,104,071
Zero %
discount to
NAV
N/A
N/A
25% increase/decrease
will have a fair value impact of
+/- of US$3,246,654
168,356,216
Asset Class
Fair Value
US$
Unobservable
inputs
Ranges
Average
Sensitivity to changes
in significant
unobservable inputs
Master Fund II
CLOs
United States
of America
16,181,402
Prices
provided by a
third party
agent
US$0.0100-
US$0.8967
US$0.4718
25% increase/decrease
will have a fair value
impact of +/- of
US$4,045,351
Europe
214,869
Prices
provided by a
third party
agent
US$0.8092-
US$0.8092
EUR0.8092
25% increase/decrease
will have a fair value
impact of +/- US$53,717
Limited Partnerships
Wollemi
11,044,256
Zero %
discount
N/A
N/A
10% increase/decrease
will have a fair value
impact of +/-
US$1,104,426
27,440,527
FINANCIAL STATEMENTS
86
Notes to the Financial Statements
For the year ended 31 December 2024
7. INTEREST INCOME
For the year ended
31 December 2024
For the year ended
31 December 2023
US$
US$
Interest income on financial assets carried at amortised
cost:
Cash and cash equivalents
732,373
1,117,468
Total
732,373
1,117,468
8. RELATED PARTIES AND OTHER KEY CONTACTS
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
Funds (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:
For the year ended
31 December 2024
For the year ended
31 December 2023
US$
US$
Company investment advisory fee
1,720,090
1,832,652
Less: Master Fund II rebate
(1,374,342)
(1,490,896)
Less: Master Fund III rebate
(193,815)
(130,318)
Net investment advisory fee
151,933
211,438
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 the Master Funds 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.
FINANCIAL STATEMENTS
87
Notes to the Financial Statements
For the year ended 31 December 2024
8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED)
Transactions with Investment Adviser and Investment Portfolio Investor (continued)
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.
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.
FINANCIAL STATEMENTS
88
Notes to the Financial Statements
For the year ended 31 December 2024
8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED)
Transactions with Investment Adviser and Investment Portfolio Investor (continued)
Fair Oaks CLOs
At 31 December 2024, Wollemi had the following investments in Fair Oaks CLOs:
Fair Oaks CLOs
31 December 2024
31 December 2023
EUR
EUR
FOAKS 1 CLO
22,972,086
20,783,972
FOAKS 2 CLO
22,882,540
24,035,934
FOAKS 3 CLO
26,472,856
23,901,852
FOAKS 4 CLO
26,896,026
30,126,945
FOAKS 5 CLO
22,408,372
-
FOLF V
-
13,000,000
FOLF VI was set up before year-end but no drawdowns had been made. 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 respectively a
carried interest equal to 20 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 Funds 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 2024, US$Nil (31 December 2023: US$Nil) carried interest was due
at Master Funds’ level in respect of the Company’s limited partnership interests.
Administrator
Apex Fund and Corporate Services (Guernsey) Limited (formerly 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$38,429 (31 December 2023: US$36,599), payable
quarterly in arrears for Administration and Accounting services. The Administrator is also entitled to an annual
fee of £629 (31 December 2023: £629) in relation to FATCA reporting and acting as Responsible Officer.
Master Funds
The Company paid audit fees to KPMG on behalf of the Master Funds. At 31 December 2024 US$nil (31
December 2023: US$ 120,488) was receivable from the Master Funds. The amount due to KPMG on behalf of
the Company is US$122,502 (31 December 2023: US$45,795) (Note 13).
Custodian
BNP Paribas Securities Services S.C.A., Guernsey Branch (the “Custodian”) waived all fees on the basis that
assets are invested into the Master Fund II.
Directors’ Fees
The Company’s Board of Directors are entitled to a fee in remuneration for their services as Directors at a rate
payable of £45,000 each per annum (31 December 2023: £45,000). An additional £3,000 per annum (2023:
£nil) is payable to the Chair of the Audit Committee.
FINANCIAL STATEMENTS
89
Notes to the Financial Statements
For the year ended 31 December 2024
8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED)
Other Material Contracts (continued)
Directors’ Fees (continued)
The overall charge for the above-mentioned fees for the Company and the amounts due are as follows:
For the year ended
31 December 2024
For the year ended
31 December 2023
US$
US$
CHARGE FOR THE PERIOD
Investment Adviser fee
151,933
211,438
Administration fee
81,991
123,061
Directors’ fees and expenses
218,843
218,274
OUTSTANDING FEES
Investment Adviser fee
15,853
18,633
Administration fee
45,993
37,942
Shares held by related parties
The shareholdings of the Directors’ in the Company were as follows:
31 December 2024
31 December 2023
No. of 2021
No. of 2021
Shares
Percentage
Shares
Percentage
Name
Jon Bridel*
40,000
0.01%
40,000
0.01%
*A person closely associated with Mr. Bridel is the registered holder of these shares. Mr. Bridel resigned on 31 December
2024.
As at 31 December 2024, the Investment Adviser, the General Partner and principals of the Investment Adviser
and General Partner held an aggregate of 5,317,659 2021 Shares (31 December 2023: 5,331,980 2021 Shares)
and 110,902 Realisation Shares (31 December 2023: 92,086 Realisation Shares), which is 0.54% (31
December 2023: 0.91%) of the issued 2021 Share capital and 0.10% (31 December 2023: 0.20%) of the issued
Realisation Share capital respectively.
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.
On 17 September 2024 and 6 December 2024 the Company returned US$2,850,050 and US$2,100,000 by
way of partial redemptions of Realisation Shares, being the “Fourth Redemption” and “Fifth Redemption”
respectively. The Fourth Redemption was effected at 56.08 US cents per share, being the NAV per Realisation
Share as at 31 July 2024 of 58.08 US cents per share less the dividend of the period to 28 June 2024 of 2.00
US cents per share.
FINANCIAL STATEMENTS
90
Notes to the Financial Statements
For the year ended 31 December 2024
10.
SHARE CAPITAL (continued)
The Fifth Redemption was effect at 56.20 US cents per share, being the NAV per Realisation Share as at 31
October 2024 of 58.20 US cents per share less the dividend for the period to 30 September 2024 of 2.00 US
cents per share. (31 December 2023: The Company returned a total of US$3,255,010 by way of partial
redemptions of Realised Shares, being the Second and Third Redemptions).
Following the Distribution Policy announcement on 20 September 2022 and the general authority granted by
shareholders of the Company on 14 June 2024 to make market purchases of its own Ordinary Shares, the
Company repurchased 5,603,189 2021 Shares during the period to 31 December 2024 (31 December 2023
20,699,431 2021 Shares), to be held in Treasury, at average cost of US$0.5384 (31 December 2023
US$0.5057) per 2021 Share. At 31 December 2024, the Company held 28,560,207 (31 December 2023
23,805,408) 2021 Shares in Treasury. The Company issued 848,660 2021 Shares from Treasury during the
year at an average price of US$0.5775 (31 December 2023: Nil).
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
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.
31 December 2024
31 December 2023
Shares
US$
Shares
US$
Issued share capital
2021 Shares
Share capital at the beginning
of the year
382,010,069
372,680,688
402,709,500
383,148,853
Treasury share issue
848,660
490,101
-
-
Share buy backs
(5,603,189)
(3,016,924)
(20,699,431)
(10,468,165)
Share capital at the end of the
year
377,255,540
370,153,865
382,010,069
372,680,688
FINANCIAL STATEMENTS
91
Notes to the Financial Statements
For the year ended 31 December 2024
10.
SHARE CAPITAL (continued)
31 December 2024
31 December 2023
Shares
US$
Shares
US$
Issued share capital
Realisation Shares
Share capital at the beginning
of the year
49,906,358
51,996,697
55,578,441
55,251,707
Share redemptions
(8,820,338)
(4,950,050)
(5,672,083)
(3,255,010)
Share capital at the end of the
year
41,086,020
47,046,647
49,906,358
51,996,697
The total number of 2021 Shares in issue, as at 31 December 2024 was 405,815,477 (31 December 2023:
405,815,477 shares), of which 28,560,207 2021 Shares were held in Treasury (31 December 2023:
23,805,408 2021 Shares), and the total number of 2021 Shares in issue excluding treasury shares were
377,255,540 (31 December 2023: 382,010,069 shares).
The total number of Realisation Shares in issue, as at 31 December 2024 was 41,086,020 (31 December
2023: 49,906,358), of which no shares were held in Treasury (31 December 2023: none). At 31 December
2024, the Company has 418,341,290 (31 December 2023: 431,916,427) Shares (excluding treasury shares).
11.
EARNINGS PER SHARE
31 December 2024
31 December 2023
2021
Shares
Realisation
Shares
2021
Shares
Realisation
Shares
US$
US$
US$
US$
Weighted average number
of shares
381,215,076
48,193,055
391,034,588
54,488,077
Profit for the year
29,387,034
4,278,530
26,794,126
4,190,991
Basic and diluted earnings
per share
0.0771
0.0888
0.0685
0.0769
For the year ended 31 December 2024, profits for the year have been allocated 88.2% to 2021 Shares and
11.8% to Realisation Shares (31 December 2023 86.47% to 2021 Shares and 13.53% Realisation Shares).
The weighted average number of shares as at 31 December 2024 and 31 December 2023 is based on the
number of 2021 Shares and Realisation Shares in issue during the year.
12.
OTHER RECEIVABLES AND PREPAYMENTS
31 December 2024
31 December 2023
US$
US$
Receivable from related parties (Note 8)
-
120,488
Income distribution receivable
-
452,434
Prepayments
14,350
20,524
14,350
593,446
FINANCIAL STATEMENTS
92
Notes to the Financial Statements
For the year ended 31 December 2024
13.
TRADE AND OTHER PAYABLES
31 December 2024
31 December 2023
US$
US$
Investment advisory fees payable
15,853
18,633
Audit fees payable
122,502
45,795
Registrar's fees payable
13,763
33,144
Sundry expenses payable
72,809
13,554
Administration fees payable
45,993
37,942
FOIL Realisation - share redemption –
service fee payable
-
6,651
FOIL 2021 - share buyback payable
-
33,997
FOIL Realisation - share redemption accrual
-
2,099,990
270,920
2,289,706
14.
CONTINGENT LIABILITIES AND COMMITMENTS
The Company entered into a Subscription Agreement with Master Fund III to become a Limited Partner with
a total commitment of US$289,500,000 (31 December 2023: total commitment of US$289,500,000) of which
US$277,321,949 (31 December 2023: US$268,573,683) had been called.
The Company entered into a Subscription Agreement with Master Fund II to become a Limited Partner with
a total commitment of US$452,346,532 (31 December 2023: US$452,346,532) of which US$432,982,362 (31
December 2023: US$432,982,362) had been called. With effect from 22 April 2021, 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.
At 31 December 2024 and 31 December 2023, the Company had no other outstanding commitments.
15.
SUBSEQUENT EVENTS
On 22 January 2025, the Company announced it repurchased 25,419 2021 Shares at a price of USD 0.5502
per Share, to be held in Treasury.
On 6 February 2025, 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 2024. The ex-dividend date
was 29 February 2024 and the dividend was paid on 7 March 2025.
On 14 March 2025, the Company returned US$4,500,000 by way of a compulsory partial redemption of
Realisation Shares (the "Sixth Redemption").
On 28 February 2025, the Company issued 750,000 2021 Shares from Treasury. The 2021 Shares were
issued at a price of 55.50 cents per 2021 Share.
There were no other significant events since the year end which would require revision of the figures or
disclosures in the Financial Statements.
ADDITIONAL INFORMATION
93
Portfolio Statement (unaudited)
At 31 December 2024
CLO Equity Income Notes
Security
Instrument
Par Value 51
Valuation
ALLEG 2021-1A SUB
Subordinated Notes
US$1,912,200
60.00%
ALLEG 2017-2X SUB
Subordinated Notes
US$27,541,663
20.00%
ALLEG 2021-1X SUB
Subordinated Notes
US$18,782,896
60.00%
ARES 2015-35R
Subordinated Notes
US$17,958,200
15.00%
AWPT 2017-6X SUB
Subordinated Notes
US$20,755,535
2.00%
FOAKS 1X M
Subordinated Fee Notes
€673,100
0.00%
FOAKS 1X SUB
Subordinated Notes
€18,846,800
60.18%
FOAKS 1X Z
Subordinated Fee Notes
€576,943
91.91%
FOAKS 2X M
Subordinated Fee Notes
€673,100
0.00%
FOAKS 2X SUB
Subordinated Notes
€31,635,700
42.03%
FOAKS 2X Z
Subordinated Fee Notes
€576,943
107.81%
FOAKS 3X M
Subordinated Fee Notes
€673,100
34.56%
FOAKS 3X SUB
Subordinated Notes
€23,558,500
57.91%
FOAKS 3X Z
Subordinated Fee Notes
€576,943
130.26%
FOAKS 4X M
Subordinated Fee Notes
€673,100
0.00%
FOAKS 4X SUB
Subordinated Notes
€18,846,800
77.13%
FOAKS 4X Z
Subordinated Fee Notes
€576,943
162.21%
FOAKS 5X M
Subordinated Fee Notes
€626,030
1.71%
FOAKS 5X SUB
Subordinated Notes
€17,904,460
82.24%
FOAKS 5X Z
Subordinated Fee Notes
€1,073,195
118.35%
HLM 13X-18 SUB
Subordinated Fee Notes
US$17,923,665
23.00%
POST 2018-1X SUB
Subordinated Notes
US$27,132,423
35.00%
ROCKT 2021-2X SUB
Subordinated Notes
US$16,922,150
61.00%
SHACK 2018-12 SUB
Subordinated Notes
US$20,721,000
27.00%
WELF 2018-1X SUB
Subordinated Notes
US$20,030,300
6.60%
WELF 2021-2X SUB
Subordinated Notes
US$19,943,963
33.00%
CLO Mezzanine Notes
Security
Instrument
Par Value
Valuation
ACLO 12X F
Class F Notes
€1,393,317
98.75%
AVOCA 16X FRR
Class F Notes
€1,615,440
98.37%
AVOCA 18X FR
Class F Notes
€1,177,925
98.00%
DRSLF 2017-49A F
Class F Notes
US$3,177,220
65.57%
DRSLF 2017-53A
Class F Notes
US$3,453,500
76.19%
FOAKS 4X F
Class F Notes
€3,432,810
101.47%
HLM 13X-18 F
Class F Notes
US$3,962,891
97.93%
OHECP 2015-4X FR
Class F Notes
€1,753,687
98.69%
SYMP 2018-19A F
Class F Notes
US$3,798,850
76.24%
TRNTE 8X F
Class F Notes
€1,346,200
98.34%
FOAKS 2X ER
Class F Notes
€1,434,150
103.01%
51 Shows the Company’s 2021 Shares proportionate share, via the Master Fund III, in the Master Fund II at 62.21% (31 December 2023: 62.21%) and the Company’s
direct holding in the Master Fund II at 9.59% (31 December 2023: 9.59%). 2021 Shares and Realisation Shares proportionate share together at 69.06% (31 December
2023: 68.89%). Also includes Master Fund III's direct investments, Master Fund II’s 91.76% share in Wollemi.
ADDITIONAL INFORMATION
94
Management and Administration
Directors
Richard Burwood (Independent non-executive Chair)
Fionnuala Carvill (Independent non-executive Director)
Trina Le Noury (Independent non-executive Director)
Registered Office and Business Address
Administrator and Secretary
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
Apex Fund and Corporate Services (Guernsey)
Limited (formerly Sanne Fund Services (Guernsey)
Limited)
1 Royal Plaza
GY1 2HL
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser
Registrar
Fair Oaks Capital Limited
1 Old Queen Street
Link Market Services (Guernsey) Limited also
trades as MUFG Corporate Markets
London
Mont Crevelt House
SW1H 9JA
Bulwer Avenue St Sampson
Guernsey
GY2 4LH
Legal Advisers in Guernsey
Legal Advisers in United Kingdom
Carey Olsen (Guernsey) LLP
Stephenson Harwood LLP
Carey House
1 Finsbury Circus
Les Banques
London
St Peter Port
EC2M 7SH
Guernsey
GY1 4BZ
Joint Bookrunners, Joint Brokers and
Joint Financial Advisers
Independent Auditor
KPMG Channel Islands Limited
Deutsche Numis Securities Limited
Glategny Court
10 Paternoster Square
Glategny Esplanade
London
St Peter Port
EC4M 7LT
Guernsey
GY1 1WR
Liberum Capital Limited
Ropemaker Place, Level 12
Custodian and Principal Bankers
Ropemaker Street
BNP Paribas Securities Services S.C.A.
London
BNP Paribas House
EC2Y 9LY
St Julian’s Avenue
St Peter Port
Guernsey
GY1 1WA
ADDITIONAL INFORMATION
95
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 the 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 companies where the dividend paid may differ.
For the year
ended
For the year
ended
2021 Shares
31 December
2024
31 December
2023
Opening NAV per 2021 Share
US$0.5638
US$0.5721
Opening accumulated number of 2021 Shares* (a)
3,272.6 shares
2,854.4 shares
Opening NAV valuation of shares (b)
US$1,845.1
US$1,633.1
Dividends paid during the period
US$0.0800
US$0.0800
Dividends converted to shares** (c)
504.0 shares
418.1 shares
Closing NAV per 2021 Share
US$0.5614
US$0.5638
Closing
accumulated
number
of
2021
Shares*
(d = a + c)
3,776.6 shares
3,272.6 shares
Closing NAV valuation of shares (e)
US$2,120.2
US$1,845.1
NAV valuation of shares return (f = e – b)
US$275.1
US$212.1
Total NAV return (g = (f / b) x 100)
14.91%
12.98%
For the year
ended
For the year
ended
Realisation Shares
31 December
2024
31 December
2023
Opening NAV per Realisation Share
US$0.5715
US$0.5747
Opening accumulated number of Realisation Shares* (a)
3,268.3 shares
2,855.3 shares
Opening NAV valuation of shares (b)
US$1,868.0
US$1,641.0
Dividends paid during the period
US$0.0800
US$0.0800
Dividends converted to shares** (c)
490.4 shares
412.9 shares
Closing NAV per Realisation share
US$0.5832
US$0.5715
Closing
accumulated
number
of
Realisation
Shares*
(d = a + c)
3,758.7 shares
3,268.3 shares
Closing NAV valuation of shares (e)
US$2,192.1
US$1,868.0
NAV valuation of shares return (f = e – b)
US$324.1
US$227.0
Total NAV return (g = (f / b) x 100)
17.35%
13.82%
*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.
ADDITIONAL INFORMATION
96
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report (continued)
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 the 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 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 companies where the dividend paid may differ.
For the year
ended
For the year
ended
2021 Shares
31 December
2024
31 December
2023
Opening share price per 2021 Share
US$0.5500
US$0.4900
Opening accumulated number of 2021 Shares* (a)
3,355.6 shares
2,876.6 shares
Opening share price valuation of shares (b)
US$1,845.6
US$1,409.6
Dividends paid during the period
US$0.0800
US$0.0800
Dividends converted to shares** (c)
508.6 shares
479.0 shares
Closing share price per 2021 Share
US$0.5400
US$0.5500
Closing
accumulated
number
of
2021
Shares*
(d = a + c)
3,864.2 shares
3,355.6 shares
Closing share price valuation of shares (e)
US$2,086.7
US$1,845.6
Share price valuation of shares return (f = e – b)
US$241.1
US$436.0
Total Share price return (g = (f / b) x 100)
13.06%
30.94%
For the year
ended
For the year
ended
Realisation Shares
31 December
2024
31 December
2023
Opening share price per Realisation Share
US$0.5700
US$0.5650
Opening accumulated number of Realisation Shares* (a)
3,233.8 shares
2,810.0 shares
Opening share price valuation of shares (b)
US$1,843.2
US$1,587.7
Dividends paid during the period
US$0.0800
US$0.0800
Dividends converted to shares** (c)
478.3 shares
423.8 shares
Closing share price per Realisation Shares
US$0.5710
US$0.5700
Closing
accumulated
number
of
Realisation
Shares*
(d = a + c)
3,712.1 shares
3,233.8 shares
Closing share price valuation of shares (e)
US$2,119.6
US$1,843.2
Share price valuation of shares return (f = e – b)
US$276.4
US$255.5
Total Share Price return (g = (f / b) x 100)
14.99%
16.10%
*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.
ADDITIONAL INFORMATION
97
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report (continued)
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.
2021 Shares–from the Master Fund III a weighted average percentage for the year of 95.61% (31
December 2023: 99.33%), the Master Fund II at a weighted average percentage for the year of
59.48% (31 December 2023: 59.37%), Wollemi at a weighted average percentage for the year of
59.94% (31 December 2023: 63.18%), and Cycad Investments LP at a weighted average percentage
for the period of 0% (31 December 2023: 9.45%) are included. Cycad was liquidated during 2024.
2.
Realisation Shares – from the Master Fund II a weighted average percentage for the year of 9.59% (31
December 2023: 9.59%), Wollemi at a weighted average percentage for the year of 7.38% (31 December
2023: 8.58%) and Cycad Investments LP at a weighted average percentage for the year of 0% (31
December 2023: 1.28%) are included. Cycad was liquidated during 2024.
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.
1 January 2024 to 31 December 2024
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
2021 Shares
Total expenses
974,080
2,011,686
2,985,766
Non-recurring expenses
-
-
-
Total ongoing expenses
974,080
2,011,686
2,985,766
Average NAV
213,940,615
213,940,615
Ongoing charges ratio (using AIC
methodology)
0.46%
1.40%
1 January 2024 to 31 December 2024
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
Realisation Shares
Total expenses
106,150
260,136
366,286
Non-recurring expenses
-
-
-
Total ongoing expenses
106,150
260,136
366,286
Average NAV
27,594,692
27,594,692
Ongoing charges ratio (using AIC
methodology)
0.38%
1.32%
ADDITIONAL INFORMATION
98
Appendix (unaudited)
Alternative Performance Measures used in the Annual Report (continued)
Ongoing charges ratio (“OCR”) (continued)
1 January 2023 to 31 December 2023
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
2021 Shares
Total expenses
1,016,006
2,088,550
3,104,556
Non-recurring expenses
-
-
-
Total ongoing expenses
1,016,006
2,088,550
3,104,556
Average NAV
227,421,772
227,421,772
Ongoing charges ratio (using AIC
methodology)
0.45%
1.37%
1 January 2023 to 31 December 2023
Master
Fund III
Master
Fund II
Total
Company
US$
US$
US$
Realisation Shares
Total expenses
132,711
288,497
421,208
Non-recurring expenses
-
-
-
Total ongoing expenses
132,711
288,497
421,208
Average NAV
31,997,670
31,997,670
Ongoing charges ratio (using AIC
methodology)
0.41%
1.32%