DJ Annual Financial Report
M&G Credit Income Investment Trust plc (MGCI) Annual Financial Report 24-March-2022 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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LEI: 549300E9W63X1E5A3N24
M&G Credit Income Investment Trust plc
Annual Report and audited Financial Statements for the year ended 31 December 2021
The full Annual Report and Accounts will shortly be available via the Company's website at www.mandg.co.uk/ creditincomeinvestmenttrust or by contacting the Company Secretary at mandgcredit@linkgroup.co.uk.
The Directors present the results of the Company for the year ended 31 December 2021.
Chairman's statement
Performance
I am delighted to report that your Company has again exceeded the performance originally targeted at its Initial Public Offering (IPO). This target was to achieve an annualised dividend yield of LIBOR plus 2.5% (on the 100p issue price) from launch until 31 December 2019 and of LIBOR plus 4% (on the opening net asset value (NAV) per Ordinary Share) thereafter (our benchmark). We have met this target whilst also increasing the Company's NAV.
Your Company's NAV at its launch on 14 November 2018, being the gross proceeds of the IPO less the IPO expenses, was 98.38p per Ordinary Share. The opening NAV on 1 January 2021 (adjusted for the last dividend for 2020) was 99.45p per Ordinary Share and the NAV on 31 December 2021 (adjusted for the last dividend for 2021) was 99.66p per Ordinary Share. Including dividends paid, the annualised NAV total return was 4.3% since launch, whilst our benchmark return was 3.9%. NAV total return for the year to 31 December 2021 was 4.3%, compared to our benchmark return of 4.1%.
Over the year, the portfolio outperformed comparably rated public indices such as the ICE BofA Sterling and Collateralised Index (down by 3.0%) and the ICE BofA European Currency Non-Financial High Yield 2% Constrained Index (up by 3.3%). This shows our Investment Manager's skill in generating a stable and attractive level of income whilst maintaining low asset value volatility.
2021's benign credit but volatile sovereign debt markets provided challenging conditions in which to generate returns. The start of the year saw an increase in government bond yields, prompted by investor concerns over the risks associated with inflation and economic overheating. At the same time, corporate credit spreads tightened to inside pre-pandemic levels, buoyed by the support offered by central bank bond purchasing programmes. This reduced the pool of both primary and secondary public investment opportunities that met the risk adjusted return profile of the Company. The continued tightening in credit markets did, however, allow our Investment Manager to sell down corporate public bonds into the market strength, realising pleasing capital gains. Proceeds were reinvested into higher yielding private assets which both improved the credit quality of the portfolio and generated income in excess of comparably rated public bonds.
In the latter part of the year, inflation reached multi- decade highs in core economies, as disruption to global supply chains and soaring energy prices began to exert pressure on corporate margins. After stabilising over the summer months, government bond yields resumed their climb higher into the final quarter of the year. By hedging interest rate risk and maintaining low modified duration (low sensitivity to interest rate movements), our Investment Manager offset the effect of rising risk-free rates on the portion of portfolio returns derived from fixed income securities.
Share buybacks and discount management
At the beginning of the year, your Board was concerned that the volatility in the price of the Ordinary Shares was not reflecting the stability and low volatility of the underlying NAV. On 30 April 2021, we announced a 'zero discount' policy (the 'Policy') to seek to manage the discount or premium to NAV at which the Company's Ordinary Shares trade.
Your Company has undertaken a number of share buybacks pursuant to the Policy. In addition, our Investment Manager has held meetings over course of the year with both existing and potential investors. Pleasingly, these endeavours, coupled with a more positive market backdrop, have led to a narrowing of the discount to NAV at which the Ordinary Shares trade.
The Company's Ordinary Share price traded at an average discount to NAV of 5.4% during the year ended 31 December 2021. On 31 December 2021 the Ordinary Share price was 99.5p, representing a 1.9% discount to NAV as at that date. As at 31 December 2021, 2,882,749 shares had been purchased as part of the Policy and were held in treasury. A further 1,350,000 shares have been purchased into treasury since then. To date no shares have been reissued from treasury.
As outlined in the Company's Prospectus at the time of the IPO, before the Company's fifth Annual General Meeting in 2024, the Board will formulate and submit proposals (which may constitute a tender offer or other method of distribution) to provide Shareholders with an opportunity to realise the value of their Ordinary Shares at Net Asset Value per Ordinary Share less costs. In all circumstances, the Board will seek to balance the interests of both continuing Shareholders and those electing to realise their investment with a view to minimising any reduction in the overall size of the Company.
Board
Mark Hutchinson retired from the Board on 31 August 2021. This coincided with Mark leaving his role as Chair of Private Assets at M&G Alternatives Investment Management Limited, your Company's Investment Manager. Your Board thanks him for his wise counsel, commitment and for his considerable contribution since the inception of the Company.
On 25 October 2021, we welcomed Jane Routledge to the Board. Jane has spent 30 years in marketing and communications roles in the investment management sector, communicating with pension fund, intermediary and private investor audiences. She has worked in a number of investment management businesses, including Schroders, Invesco and Hermes Fund Managers.
Dividends and transition from LIBOR to SONIA
Your Company paid dividends in respect of the year ended 31 December 2021 in accordance with the target set at launch: these totalled 4.04p per Ordinary Share. This represented a dividend yield of LIBOR plus 4% on the opening NAV as at 1 January 2021, adjusted for the dividend paid on 26 February 2021; and a dividend yield of 4.1% on the Ordinary Share price on 31 December 2021. Total dividends paid since launch have been fully covered by earnings derived from income and capital gains.
The Company has, since inception, used average daily three-month sterling LIBOR as its reference for the purpose of its dividend rate. As at 31 December 2021, in line with an industry-wide change, LIBOR ceased to exist and a new measure called Sterling Overnight Index Average (SONIA) has been adopted. A full description of the change was contained in the Half Year Report for the six months ended 30 June 2021.
The Board believes that it should pay dividends from income and prior capital gains (including accumulated capital gains from previous years). It therefore plans to continue with three, quarterly interim dividends in respect of each financial year plus a variable, fourth interim dividend to be determined after each year end, which will take into account the net income over the whole financial year and, if appropriate, any capital gains. The first three interim quarterly dividends to be paid in respect of the 2022 financial year will be paid at an annual rate of SONIA plus 3%, calculated by reference to the opening NAV as at 1 January 2022, and adjusted by the payment of the last dividend in respect of 2021.
Outlook
Your Company's portfolio (including irrevocable commitments) is now 62% invested in private (non- listed) assets, with an additional investment of some 11% in illiquid publicly listed assets which are intended to be held to maturity. As at 31 December 2021, your Company's portfolio was 85% invested in floating rate instruments and the remaining 15% of fixed rate exposure was hedged against falls in value from rising interest rates. With rates set to rise further in 2022, SONIA should also rise accordingly, which would see dividends paid by the Company increase during the course of the year, mitigating the effects of rising inflation on portfolio returns.
The Company maintains access to an undrawn GBP25 million revolving credit facility which should enable us to weather any future market shocks whilst having the firepower to purchase suitable assets as they become available.
The market volatility arising from Russia's shocking invasion of Ukraine on 24 February 2022 has seen credit spreads start to widen meaningfully, with public bond valuations beginning to look attractive again relative to the target return of the Company. Our Investment Manager is also seeing a healthy pipeline of private asset opportunities. It will remain flexible in adding risk to the portfolio from both public and private markets as and when it sees value.
We are all saddened by the developments following the invasion. The longer term economic consequences of the situation are difficult to quantify as much will depend on the length of the conflict and on any changes in geopolitical relations. The Investment Manager has confirmed that the portfolio has no direct exposure to issuers in Russia, Ukraine, or Belarus. However, it has identified a small indirect exposure via a handful of issuers who derive some portion of their revenue from these countries. This exposure is not considered material. The Investment Manager is taking, and will continue to take, all necessary actions to ensure compliance with applicable sanctions, laws and regulations, including those of the US, UK and EU.
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Our Investment Manager believes that an annual total return, and thus ultimately a dividend yield, of SONIA plus 4% will continue to be achievable in the future although there can be no guarantee that this will occur in any individual year.
David Simpson
Chairman
23 March 2022
Financial highlights
Key data
As at As at
31 December 31 December
2021 2020
Net assets (GBP'000) 143,759 146,628
Net asset value (NAV) per Ordinary Share 101.44p 101.40p
Ordinary Share price (mid-market) 99.5p 92.00p
Discount to
1.9% 9.3%
NAVa
Ongoing charges figurea 1.10% b 0.87%
Returns and dividends per Ordinary Share
Year ended Year ended
31 December 31 December
2021 2020
Capital return 1.5p 1.3p
Revenue return 2.7p 2.9p
NAV total returna 4.3% 3.7%
Share price total returna 13.0% (9.7)%
Total dividends declared 4.04pc 4.28p
a Alternative performance measure. Further information can be found on pages 112 to 113 of the full Annual Report and Accounts.
b The increase in the ongoing charges figure mainly shows the annualised effect of the increase in the investment management fee from 0.5% to 0.7% per annum. This increase in fee took effect on 1 April 2021, reflecting the fact that the portfolio is now appropriately positioned with regard to the Company's dividend target set at launch.
c The annualised dividend yield for each year was LIBOR plus 4% and reduction in dividends declared in 2021 related to reduction in average LIBOR during the current year.
Investment Manager's report
We are pleased to provide commentary on the factors that have impacted our investment approach over the last year, with particular reference to the performance and composition of the portfolio as we have sought to build it in accordance with the mandate agreed at IPO.
Fixed income asset classes began the year having recovered most, if not all, of the losses incurred from the market disruption following the onset of the COVID-19 pandemic in March 2020. Asset purchasing programmes succeeded in keeping borrowing costs low and corporate issuers of varying credit quality continued to have access to cheap investor capital. Corporate defaults fell sharply in 2021 (compared with 2020 and 2019) as the continued economic recovery and ample liquidity offset the effects of COVID-19 and supply chain disruptions, labour shortages and high inflation. This contributed to unusually benign credit conditions throughout the year which have continued into 2022. Investors looking for increased returns were forced down the credit curve into 'riskier' sectors and in many cases, out of investment grade and into high yield credit. This caused corporate credit spreads to grind tighter for much of the year, reaching multi-year lows by the end of the third quarter.
By contrast, the year saw upward pressure on government bond yields gain momentum as investor concerns over the spread of the Delta variant and a slowdown in economic growth were overtaken by those of inflation and economic overheating, which led to increased volatility in rates markets. As inflation figures continued to surprise to the upside, reaching multi- decade highs, investors increasingly questioned the "transitory" inflation narrative set forth by central banks. The 10 year UK gilt climbed above one percent for the first time since the onset of the pandemic and ensuing market turmoil in March 2020.
Investment grade and high yield spreads widened slightly into the year end, following concerns over supply bottlenecks and increased energy prices reducing economic growth and company margins. In addition, the emergence of details of a new COVID variant, Omicron, in late November also contributed to spreads widening. The potential return to COVID related economic disruption led to a repricing in markets as investors moved away from risk assets and into safer havens such as government bonds. Fears over the new variant eased into the year's close and investor focus shifted back to central bank action and signalling for the path of monetary policy in 2022.
Portfolio activity and positioning
The focus in public markets for much of the year was the rise of inflation and the reaction of sovereign debt markets. Whilst risk-free rates climbed higher, corporate credit spreads ground even tighter, reflecting investors' benign view of the credit outlook amid ample liquidity and continued policy support. Against this backdrop, the Company began the year cautiously positioned and continued to reduce risk over the period. The Company's short position in the 10 year gilt future successfully offset any depreciation in the value of the portfolio's holdings resulting from the change in interest rates.
In contrast to the market in government interest rates, volatility in credit remained subdued with central banks committed to providing monetary stimulus in the short term and corporate balance sheets strengthened by proceeds from record debt issuance during 2020. As investment grade and high yield credit spreads continued to tighten during the year, our appetite to invest in large parts of the public market remained limited. We were able to take advantage of this market strength to sell down public bonds and realise notable capital gains in the portfolio, whilst reinvesting proceeds into higher yielding private assets.
In the private market, transactions continued to offer attractive illiquidity premia to comparable public issues, providing high quality income which contributed significantly to strong portfolio performance. The resilience and adaptability of the asset class during the ongoing COVID-19 pandemic has proved its value in balancing out the more variable and lower-returning public markets.
As the year progressed, bond purchases in the public market remained selective as valuations in both Investment Grade and High Yield continued to look expensive by historical standards, on a risk-adjusted basis. We continued to reduce risk, taking advantage of the sustained strength in credit markets to sell down bonds that were purchased at much wider spreads during 2020 following the initial shock of the COVID-19 pandemic. These were bonds that had tightened in to offer yields well inside our long-term return objective and their sale also enabled us to realise further capital gains. We continued reinvesting proceeds from public bond sales into higher yielding private assets with strong structural protections which improved the credit quality of the portfolio. Toward the end of the year we purchased the senior, AAA rated tranches in some of the new issue CLOs, which appeared attractively priced relative to investment grade corporate bonds.
We transacted a notable number of private deals over the course of the year, across various asset types offering exposure to a diverse range of sectors, all of which offered a significant spread increase versus public comparators. As at 31 December 2021, the funded private asset portion of the portfolio had increased to 56.5% (versus 44.1% at 31 December 2020) with an additional investment of 5.3% in private assets transacted after the period end, or committed to be drawn down beyond the date of this report. This is expected to take the Company's overall private asset exposure to approximately 61.8%.
Outlook
In 2022, the key theme for markets will be inflation and the reaction of central banks, whilst the wide reaching economic implications of Russia's invasion of Ukraine has added additional complexity to any decision making.
Recent central bank signalling has been hawkish, indicating that combatting inflation is currently the main priority and is viewed with greater emphasis than a deteriorating growth backdrop. At the end of 2021, the Federal Reserve announced that its pandemic bond buying programme would end in March 2022 and market expectations are for its policy rate to increase by six additional 25bps hikes to reach 1.9% by the end of 2022. Correspondingly, the market is also pricing six additional 25bps interest rate increases from the Bank of England which would see its base rate reach 2.1% by the end 2022. Both the Federal Reserve and Bank of England have signalled they will soon begin reducing the size of their balance sheets (quantitative tightening) with the latter announcing that GBP20 billion of sterling corporate bonds would be sold back into the market. This has seen risk-free rates climb higher whilst credit spreads have simultaneously widened, with overall bond yields moving notably higher as a result. These shifts in monetary policy are viewed by many investors as being overly- aggressive and have contributed to heightened volatility in bond markets.
Russia's attack on Ukraine on 24 February 2022 has sparked considerable volatility in both equity and credit markets and complicated the path of monetary policy, given the threat to global economic growth at a time of already record inflation and the potential risk of stagflation. The commodity shock induced by the crisis has already seen a surge in the price of crude oil, natural gas and metals such as copper and nickel which, in addition to increased supply chain disruption, is creating further upward inflationary pressure.
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The early part of the year has seen credit yields increase. Against a backdrop of tighter borrowing conditions and rising input costs, corporate margins look set to be squeezed and company balance sheets will be put under increasing pressure. Corporate credit analysis and selectivity will be key as market conditions in 2022 have already proved to be far less benign than 2021. If current conditions continue, we will seek to increase the yield of the portfolio by selling our cash proxy ABS holdings and reinvesting proceeds into new private investment opportunities and attractively priced investment grade corporate bonds. The rotation into private assets with stronger structural protections will provide stability of capital value. Volatility in public credit markets also presents the Investment Manager with the potential opportunity to add bonds into the portfolio with risk adjusted returns that are more in line with the Company's long term objective. The Company's access to the GBP25 million credit facility also provides the Investment Manager with additional scope to take advantage of any further volatility. The current pipeline of private asset opportunities looks very healthy, with a number of deals in the process of being negotiated that we are hopeful of completing in the first half of the year.
M&G Alternatives Investment Management Limited
23 March 2022
Portfolio analysis
Top 20 holdings
As at 31 December 2021 Percentage of portfolio of investments a
M&G European Loan Fund 12.45
Sonovate Limited Var. Rate 12 April 2022 2.04
Westbourne 2016 WR Senior Var. Rate 30 Sept 2023 1.63
Delamare Finance FRN 1.279% 19 Feb 2029 1.62
Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.61
Hall & Woodhouse Var. Rate 30 Dec 2023 1.56
Lewisham Var. Rate 12 Feb 2023 1.50
Finance for Residential Social Housing
1.48
8.569% 4 Oct 2058
PE Fund Finance III Var. Rate 16 Dec 2022 1.44
Newday Partnership Funding 2017-1 FRN 0.8053%
1.42
15 Dec 2027
Signet Excipients Var. Rate 20 Oct 2025 1.40
Hammond Var. Rate 28 Oct 2025 1.35
Regenter Myatt Field North Var. Rate 31
1.33
Mar 2036
RIN II FRN 1.778% 10 Sep 2030 1.31
Dragon Finance FRN 1.3665% 13 Jul 2023 1.20
CIFC European Funding Var. Rate 23 Nov 2034 1.19
NewRiver REIT 3.5% 7 Mar 2028 1.08
Marston's Issuer FRN 1.7083% 15 Oct 2031 1.07
Finance for Residential Social Housing
1.07
8.369% 4 Oct 2058
Ripon Mortgages FRN 1.2814% 20 Aug 2056 1.07
Total 38.82
a Including cash on deposit and derivatives.
Source: State Street
Geographical exposure
Percentage of portfolio of investments
as at 31 December 2021a
Percentage of portfolio of investments United Kingdom 59.47% United States 8.05% European Union 6.16% Australia 2.90% France 2.28% Other 21.14%
a Excluding cash on deposit and derivatives.
Source: M&G and State Street as at 31 December 2021
Portfolio overview
As at 31 December 2021
%
Cash on deposit 0.43
Public 42.66
Asset-backed securities 25.78
Bonds 16.88
Private 56.47
Asset-backed securities 6.14
Bonds 2.46
Investment funds 12.45
Loans 22.37
Private placements 2.21
Other 10.84
Derivates 0.44
Debt Derivatives (0.03)
Forwards 0.47
Total 100.00
Source: State Street
Credit rating breakdown
As at 31 December 2021
%
Unrated 0.44
Derivatives 0.44
74.54
Cash and investment grade
0.43
Cash on deposit
9.62
AAA
1.69
AA+
5.92
AA
0.73
AA-
0.83
A+
0.65
A
2.12
A-
10.60
BBB+
13.17
BBB
19.07
BBB-
9.71
M&G European Loan Fund (ELF) (see note)
Sub-investment grade 25.02
BB+ 4.12
BB 5.79
BB- 2.46
B+ 4.26
B 3.29
B- 1.67
CCC- 0.48
D 0.21
M&G European Loan Fund (ELF) (see note) 2.74
Total 100.00
Source: State Street.
Note: ELF is an open-ended fund managed by M&G that invests in leveraged loans issued by, generally, substantial private companies located in the UK and Continental Europe. ELF is not rated and the Investment Manager has determined an implied rating for this investment, utilising rating methodologies typically attributable to collateralised loan obligations. On this basis, 78% of the Company's investment in ELF has been ascribed as being investment grade, and 22% has been ascribed as being sub-investment grade. These percentages have been utilised on a consistent basis for the purposes of determination of the Company's adherence to its obligation to hold no more than 30% of its assets in below investment grade securities.
Top 20 holdings %
as at 31 December 2021 Company description
Open-ended fund managed by M&G which invests in leveraged loans issued by, generally,
M&G European Loan Fund substantial private companies located in the UK and Continental Europe. The fund's objective is
to create attractive levels of current income for investors while maintaining relatively low
12.45% volatility of NAV. (Private)
Sonovate Limited Var. Bilateral loan to a company providing companies in the recruitment industry with an integrated
Rate 12 Apr 2022 service that incorporates placement management, invoicing and financing. (Private)
2.04%
Westbourne 2016 1 WR Westbourne provides working capital finance to SMEs in the UK. The company is focused on small
Senior Var. Rate borrowers and has employed an advanced technology platform for the application, underwriting
and monitoring of loans. (Private)
30 Sep 2023
1.63%
Delamare Finance FRN Floating-rate, senior tranche of a CMBS secured by the sale and leaseback of 33 Tesco
1.279% 19 Feb 2029 superstores and 2 distribution centres. (Public)
1.62%
Atlas 2020 1 Trust Var. Floating-rate, senior tranche of a bilateral RMBS transaction backed by a pool of Australian
Rate 30 Sep 2050 equity release mortgages (Private)
1.61%
Hall & Woodhouse Var. Bilateral loan to a regional UK brewer that manages a portfolio of 219 freehold and leasehold
Rate 30 Dec 2023 pubs. (Private)
1.56%
Lewisham Var. Rate 12 Senior secured, fixed-rate term loan funding the costs of acquiring and developing a site in
Feb 2023 Lewisham to provide 758-bed purpose-built student accommodation and 67 affordable housing
units. (Private)
1.50%
Finance for Residential High grade (AA/Aa3), fixed rate bond backed by cash flows from housing association loans.
Social Housing 8.569% 4 (Public)
Oct 2058
1.48%
PE Fund Finance III Senior secured commitment providing NAV facility financing to a private equity firm investing
Var. Rate 16 Dec 2022 in debt and equity special situations across Europe. (Private)
1.44%
Newday Partnership High Grade ABS (AAA) UK credit card. Securitisation of a portfolio of designated consumer
Funding 2017-1 FRN credit card, store card and instalment credit accounts initially originated or acquired by
0.8053% 15 Dec 2027 NewDay Ltd in the UK. (Public)
1.42%
Signet Excipients Var. Fixed-rate loan secured against 2 large commercial premises in London, currently leased to 2
Rate 20 Oct 2025 FTSE listed UK corporations. (Public)
1.40%
Hammond Var. Rate 28 Secured, bilateral real estate development loan backed by a combined portfolio of 2 office
Oct 2025 assets leased to an underlying roster of global corporate tenants. (Private)
1.35%
Regenter Myatt Field PFI (Private Finance Initiative) floating-rate, amortising term loan relating to the already
North Var. Rate 31 Mar completed refurbishment and ongoing maintenance of residential dwellings and communal
2036 infrastructure in the London borough of Lambeth. (Private)
1.33%
RIN II FRN 1.778% 10 Mixed CLO (AAA) Consists primarily of senior secured infrastructure finance loans managed by
Sep 2030 RREEF America L.L.C. (Public)
1.31%
Dragon Finance FRN
1.3665% 13 Jul 2023 Floating-rate, subordinated tranche of a securitisation of the sale and leaseback of 10
supermarket sites sponsored by J Sainsbury plc ("Sainsbury's"). (Public)
1.20%
CIFC European Funding
Var. Rate 23 Nov 2034
Mixed CLO (AAA) backed by a portfolio of senior loan obligations, mezzanine loan obligations
1.19% and high yield bonds managed by CIFC Asset Management Europe Ltd. (Public)
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NewRiver REIT 3.5% 7 NewRiver REIT PLC operates as a real estate investment trust investing in retail properties
Mar 2028 throughout the United Kingdom. Fixed, callable bond. Senior Unsecured. (Public)
1.08%
Marston's Issuer FRN Marston's PLC is a leading independent brewing and pub retailing business. Marston's Issuer PLC
1.7083% 15 Oct 2031 operates as a special purpose entity on behalf of Marstons PLC, formed for the purpose of
issuing debt securities to repay existing credit facilities, refinance indebtedness, and for
1.07% acquisition purposes. (Public)
Finance for Residential
Social Housing 8.369% 4
Oct 2058
High grade (AA), fixed rate bond backed by cash flows from housing association loans. (Public)
1.07%
Ripon Mortgages FR High Grade ABS (AA+/Aaa). UK RMBS. The portfolio comprises buy-to-let loans originated by
1.2814% 20 Aug 2056 Bradford and Bingley and Mortgage Express, secured over residential properties located in
England and Wales. (Public)
1.07%
Strategic review
The Directors present the Strategic Review Report of the Company for the year ended 31 December 2021. The Strategic Report aims to provide Shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company during the year under review.
Business and status of the Company
The Company was incorporated on 17 July 2018 and the Initial Public Offering (IPO) of the Company's shares took place on 14 November 2018.
The Company is registered in England and Wales as a public limited company and is an investment company within the terms of Section 833 of the Companies Act 2006. The principal activity of the Company is to carry on business as an investment trust.
The Company has been approved by HM Revenue & Customs as an authorised investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. In the opinion of the Directors, the Company is directing its affairs so as to enable it to continue to qualify for such approval.
The Company's shares have a listing on the premium segment of the Official List of the FCA and trade on the London Stock Exchange's (LSE) main market for listed securities.
Investment objective
The Company aims to generate a regular and attractive level of income with low asset value volatility.
Investment policy
The Company seeks to achieve its investment objective by investing in a diversified portfolio of public and private debt and debt-like instruments ("Debt Instruments"). Over the longer term, it is expected that the Company will be mainly invested in private Debt Instruments, which are those instruments not quoted on a stock exchange.
The Company operates an unconstrained investment approach and investments may include, but are not limited to:
-- Asset-backed securities, backed by a pool of loans secured on, amongst other things, residential andcommercial mortgages, credit card receivables, auto loans, student loans, commercial loans and corporate loans;
-- Commercial mortgages;
-- Direct lending to small and mid-sized companies, including lease finance and receivables financing;
-- Distressed debt opportunities to companies going through a balance sheet restructuring;
-- Infrastructure-related debt assets;
-- Leveraged loans to private equity owned companies;
-- Public Debt Instruments issued by a corporate or sovereign entity which may be liquid or illiquid;
-- Private placement debt securities issued by both public and private organisations; and
-- Structured credit, including bank regulatory capital trades.
The Company invests primarily in Sterling denominated Debt Instruments. Where the Company invests in assets not denominated in Sterling, it is generally the case that these assets are hedged back to Sterling.
There are no restrictions, either maximum or minimum, on the Company's exposure to sectors, asset classes or geography. The Company, however, achieves diversification and a spread of risk by adhering to the limits and restrictions set out below.
The Company's portfolio comprises a minimum of 50 investments.
The Company may invest up to 30% of Gross Assets in below investment grade Debt Instruments, which are those instruments rated below BBB- by S&P or Fitch or Baa3 by Moody's or, in the case of unrated Debt Instruments, which have an internal M&G rating below BBB-.
The following restrictions will also apply at the individual Debt Instrument level which, for the avoidance of doubt, does not apply to investments to which the Company is exposed through collective investment vehicles:
Secured Debt Instruments Unsecured Debt Instruments
Rating
(% of Gross Assets) a (% of Gross Assets)
AAA 5% 5%b
AA/A 4% 3%
BBB 3% 2%
Below investment grade 2% 1% a. Secured Debt Instruments are secured by a first or secondary fixed and/or floating charge. b. This limit excludes investments in G7 Sovereign Instruments.
For the purposes of the above investment restrictions, the credit rating of a Debt Instrument is taken to be the rating assigned by S&P, Fitch or Moody's or, in the case of unrated Debt Instruments, an internal rating by M&G. In the case of split ratings by recognised rating agencies, the second highest rating will be used.
The Company typically invests directly, but it also invests indirectly through collective investment vehicles which are managed by an M&G Entity. The Company may not invest more than 20% of Gross Assets in any one collective investment vehicle and not more than 40% of Gross Assets in collective investment vehicles in aggregate. No more than 10% of Gross Assets may be invested in other investment companies which are listed on the Official List.
Unless otherwise stated, the above investment restrictions are to be applied at the time of investment. Borrowings
The Company is managed primarily on an ungeared basis although the Company may, from time to time, be geared tactically through the use of borrowings. Borrowings will principally be used for investment purposes, but may also be used to manage the Company's working capital requirements or to fund market purchases of Shares. Gearing represented by borrowing will not exceed 30% of the Company's Net Asset Value, calculated at the time of draw down, but is typically not expected to exceed 20% of the Company's Net Asset Value. Hedging and derivatives
The Company will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management, including for currency hedging. Cash management
The Company may hold cash on deposit and may invest in cash equivalent investments, which may include short- term investments in money market-type funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position. For the avoidance of doubt, the restrictions set out above in relation to investing in collective investment vehicles do not apply to money market type funds. Changes to the investment policy
Any material change to the Company's investment policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the Financial Conduct Authority (FCA). Investment strategy
The Company seeks to achieve its investment objective by investing in a diversified portfolio of public and private debt and debt-like instruments of which at least 70% is investment grade. The Company is mainly invested in private debt instruments. This part of the portfolio generally includes debt instruments which are nominally quoted but are generally illiquid. Most of these will be floating rate instruments, purchased at inception and with the intention to be held to maturity or until prepaid by issuers; shareholders can expect their returns from these instruments to come primarily from the interest paid by the issuers.
The remainder of the Company's portfolio is invested in cash, cash equivalents and quoted debt instruments, which are more readily available and which can generally be sold at market prices when suitable opportunities arise. These instruments may also be traded to take advantage of market conditions. Fixed rate instruments will often be hedged in order to protect the portfolio from adverse changes in interest rates. Shareholders can expect their returns from this part of the portfolio to come from a combination of interest income and capital movements. Investment process
The investment process for the Company consists principally of three stages: the decision to invest, monitoring and ongoing engagement and finally divestment.
Investment decision-making is undertaken by the Investment Manager, based on extensive research and credit analysis by the Investment Manager's large and experienced teams of 136 in-house analysts who specialise in public and private debt markets. This rigorous in depth analysis is fundamental to understanding the risk and return profile of potential investments. Regular monitoring is carried out to ensure that continued holding of an investment remains appropriate. This includes monitoring the performance of investments by fund managers, analysts and internal control and governance processes. The Investment Manager engages with relevant stakeholders on any issues which may, potentially, affect an investment's ability to deliver sustainable performance in line with those expectations.
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At some point, the Investment Manager may decide to divest from an investment (or the investment may complete in line with agreed terms, including pre- payment), although typically, private investments are held to their full maturity. Divestment can occur for a variety of reasons including; the investment being no longer suitable for the investment mandate, the outcome of engagement being unsatisfactory or as a result of the investment team's valuation assessment. Investment decision making is only undertaken by the fund managers designated by the Investment Manager.
As part of the investment process, full consideration is given to sustainability risks, as set out in more detail below.
Key performance indicators
In order to measure the success of the Company in meeting its objectives and policy, and to evaluate the performance of the Investment Manager, the Directors take into account the following key performance indicators (KPIs):
As at or year ended 31 December 2021 As at or year ended 31 December 2020 NAV per share 101.44p 101.40p Ordinary Share price (mid-market) 99.5p 92.0p Discount to NAVa 1.9% 9.3% Annualised dividend yielda 4.1% 4.7% Dividends declared per Ordinary Share 4.04p 4.28p Revenue return per Ordinary Share 2.7p 2.9p NAV total returna 4.3% 3.7% Share price total returna 13.0% (9.7)% Ongoing charges figurea 1.10%b 0.87% a. Alternative performance measure. Please see pages 112 to 113 of the full Annual Report and Accounts for further information. b. The increase in the ongoing charges figure mainly shows the annualised effect of the increase in the investment management fee from 0.5% to 0.7% per annum. This increase in fee took effect on 1 April 2021, reflectingthe fact that the portfolio is now appropriately positioned with regard to the Company's dividend target set at launch. Share price discount or premium to NAV
The share price discount to NAV as at 31 December 2021 was 1.9% (31 December 2020: 9.3%). During the year to 31 December 2021 the shares traded at an average discount to NAV of 5.4%. Dividend yield
The Company paid dividends during the year on a quarterly basis. The fourth dividend of 1.95p per Ordinary Share in respect of the period ended 31 December 2020 was paid on 26 February 2021.
The first quarterly dividend in respect of the year ended 31 December 2021 of 0.74p per Ordinary Share was paid on 28 May 2021. The second quarterly dividend of 0.76p per Ordinary Share was paid on 27 August 2021 and the third quarterly dividend of 0.76p per Ordinary Share was paid on 26 November 2021.
The fourth quarterly dividend of 1.78p per Ordinary Share was paid on 25 February 2022. The total dividend declared per share for the year ended 31 December 2021 was 4.04p (year ended 31 December 2020: 4.28p).
The annualised dividend yield for the year was 4.1%, based on the closing share price on 31 December 2021 (2020: 4.7%). Portfolio performance
In support of the Company's investment objective, the Board monitors the portfolio performance against the benchmark of a NAV total return of SONIAa plus 4% per annum. In addition, performance is assessed against a number of total return indices in public investment grade and high yield markets.
In addition, progress of deployment of funds into private assets is monitored alongside the balance of fixed to floating rate coupons, yield to maturity and modified duration of the portfolio. Further details are provided in the Chairman's statement on pages above and Investment Manager's report above.
a LIBOR plus 4% for the year ended 31 December 2021. Ongoing charges
The Board reviews the costs of running the Company calculated using the Association of Investment Companies' (AIC) methodology for the ongoing charges. Full details are provided on page 112 of the full Annual Report and Accounts. Risk management Role of the Board
The Directors have overall responsibility for risk management and internal control within the Company. They recognise that risk is inherent in the Company's operation and that effective risk management is an important element in the success of the organisation. The Directors have delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the Audit Committee.
The Directors, when setting the risk management strategy, also determine the nature and extent of the significant risks and their risk appetite in implementing this strategy.
In arriving at its judgement of what risks the Company faces, the Board has considered the Company's operations in the light of the following factors:
-- the nature and extent of risks it regards as acceptable for the Company to bear in line with its overallbusiness objective;
-- the threat of such risks becoming reality;
-- the Company's ability to reduce the incidence and impact of risk on its performance;
-- the cost to the Company and benefits related to the review of risk and associated controls of the Company; and
-- the extent to which the third-party service providers operate the relevant controls. Principal risks
The Company is exposed to a variety of risks that could cause the valuation of its assets and/or the income from the investment portfolio to fluctuate. The Board, through delegation to the Audit Committee, has undertaken a robust assessment and review of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Accordingly, the Audit Committee has taken into consideration the risks posed to the Company by the societal and economic impacts of governmental responses to the ongoing COVID-19 pandemic and considered the impact on the Company's net asset value and performance.
The pandemic has triggered, and may continue to trigger, increased volatility in terms of global risk asset valuations as well as presenting operational challenges for the Company's service providers as they respond to various limitations on free movement of staff imposed by governments across the world. The Board continues to receive regular reporting from the Company's major service providers and does not anticipate a fall in the level of service. The duration and ultimate impact of the pandemic is not presently possible to predict and the Board will continue to monitor and report on material developments on an ongoing basis.
These risks are formally documented in the Company's risk register, so that the risks identified and the controls in place to mitigate those risks can be monitored. The Audit Committee reviews and discusses potential new and emerging risks to the Company including those identified by the Investment Manager. Any new or emerging risks that are identified and that are considered to be of significance are also included in the Company's risk register together with any mitigating actions required.
The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The key risks identified by the Board, and the associated key mitigants and controls, are set out below:
Key Risk
Key Mitigants and Controls
Market risk
Market risk embodies the potential for both losses and
gains and includes foreign currency risk, interest rate
risk and price risk. Market risk mainly arises from
uncertainty about future values of financial instruments
influenced by price, currency and interest rate
movements. It represents the potential gain or loss that
the Company may suffer through holding market positions Key mitigants and controls are set out in the sub- headings
in investments in the face of market movements. below.
Market risk includes the potential impact of events that
are outside the Company's control, such as the
COVID-19 pandemic.
Foreign currency risk
Foreign currency risk is the risk that the fair value of
future cash flows of a financial instrument will The Company fully hedges non-base currency investments at time
fluctuate because of changes in foreign exchange rates. of purchase using spot and forward foreign exchange contracts
The Company is exposed to risks that the exchange rate which are rolled forward periodically. Non-base currency
of its reporting currency relative to other currencies exposure is monitored on an ongoing basis via internal
may change in a manner that has an effect on the value systems, with hedging maintained at approximately +/-20bps
of the portion of the Company's assets which are tolerance.
denominated in currencies other than its own reporting
currency.
Interest rate risk
Interest rate risk is the risk that the fair value of The Company uses gilt futures contracts to mitigate interest
future cash flows of a financial instrument will rate risk with portfolio duration monitored on an ongoing
fluctuate because of changes in market interest rates. basis via internal systems and adjusted accordingly. Market
The Company's investments are in some cases subject to conditions since launch have seen the Company maintain an
interest rate risk. In relation to fixed-rate average modified duration of between 1-1.5 years. There are no
obligations, when interest rates decline, the values can restrictions regarding the level of duration the Company can
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be expected to rise, and, conversely, when interest maintain however its Investment Objective outlines commitment
rates rise, the value of fixed-rate obligations can be to low asset value volatility.
expected to decline.
Market price risk
Market price risk includes changes in market prices,
other than those arising from foreign currency or
interest rate risk, which may affect the value of
investments, such as macroeconomic and geopolitical
events and trends, and sectoral influences. The Board has put in place limits on the Company's gearing,
portfolio concentration and use of derivatives, which it
believes to be appropriate to keep the Company's investment
portfolio adequately diversified and to manage risk.
As the Company invests in public and private debt
instruments, it is regularly exposed to market risk and
the value of the Company's portfolio fluctuates in
response to developments in financial markets.
Credit Risk
The Company's policy to manage this risk is to invest no more
than 30% of the Company's assets in Debt Instruments that have
a minimum credit rating below BBB- (or equivalent). Within the
Because of its investment strategy, the Company is also above limit, the Company may also invest in unrated assets
materially exposed to credit risk, which is the risk where a rating is assigned by the Investment Manager using an
that one party to a financial instrument will cause a internal methodology that is based on the categorisations used
financial loss for the other party by failing to by rating agencies. When new investment opportunities arise, a
discharge an obligation. The main concentration to which detailed credit review is undertaken by the Investment
the Company is exposed arises from the Company's Manager. A fundamental qualitative and quantitative assessment
investments in Debt Instruments. of both business and financial risk, supported by appropriate
financial modelling, alongside a review of the corporate
structure and issuance document form the basis of the credit
review. On an ongoing basis, the Investment Manager monitors
The Company is also exposed to counterparty credit risk the Company's investments against a variety of measures
on trading derivative products, Cash and Cash including financial performance and their progress against a
Equivalents, amounts due from brokers and other variety of covenants.
receivable balances.
The Company only transacts with parties that the Investment
Manager considers to be suitable from a credit risk
perspective.
Investment management performance risk
Other than in respect of market risk, the performance of The Investment Manager applies a 'three lines of defence'
the Company's portfolio of assets depends primarily on model for risk management, incorporating the individual fund
the investment strategy, asset allocation and stock manager and line management; independent risk and compliance
selection decisions taken by the Investment Manager functions and reporting structures; and internal audit.
within the parameters and constraints imposed by the Measures and tools such as volatility estimation, value at
Company's investment policy. risk analysis and stress testing are used in order to better
understand risk concentrations within the portfolio.
Liquidity risk As the Company is closed-ended, it is not exposed to the same
risks of liquidity mismatch that are inherent in the
management of portfolios owned by open-ended funds. This
enables the Company to invest in assets that have limited or
The Company invests in public and private debt no secondary market liquidity in order to seek to capture the
instruments. Some of these investments may be difficult additional yield that is generally available compared to more
to value or realise (if at all). The market price that liquid instruments.
is achievable for such investments may ultimately
therefore be different than the carrying values of these
assets as reflected in the Company's reported NAV per
Ordinary Share from time to time. Before the Company's fifth AGM in 2024, the Board will submit
to Shareholders proposals to enable them to realise the value
of their Ordinary Shares. The Board monitors the liquidity
profile of the Company's assets on a quarterly basis through
the receipt of an asset liquidity analysis from the Investment
Manager.
Dividend policy risk
The level of dividends that the Board will declare will
be dependent largely on the performance of the Company's
investment portfolio over time and the market conditions
that exist during relevant performance periods. Apart
from asset selection and market conditions, factors that The Investment Manager runs a dividend projection model that
may also affect performance include, inter alia, the is regularly reviewed by the Board.
Company's level of gearing, its accounting policies,
changes in variable interest rates, the level of loan or
bond prepayments and a change in the tax treatment of
the interest received by the Company.
Operational risk
Due diligence is undertaken before contracts are entered into
In common with most other investment trusts, the Company with third-party service providers. Thereafter, service
has no executive directors, no executive management and provider oversight is conducted through ongoing interaction
no employees. The Company delegates key operational with the Management Engagement and Audit Committees and is
tasks to third-party service providers that are formalised through an annual evaluation process.
specialists in their fields as follows:
-- Management of the Company's investment
portfolio to M&G Alternatives Investment Management Most third party service providers produce internal control
Limited reports to provide assurance regarding the effective operation
-- Preparation and maintenance of the of internal controls as reported on by their reporting
Company's Financial Statements and maintenance of accountants. These reports are provided to the Audit Committee
its records to State Street Bank and Trust Company for review by the Investment Manager's Supplier Management
Team. The Committee would seek further representations from
-- Company Secretarial Services to Link the service providers if not satisfied with the effectiveness
Company Matters Limited of their control environment.
-- Registrar services to Link Group
-- Worldwide custody of the Company's assets
to State Street Bank and Trust Company
-- Safekeeping and depositary services to The Management Engagement and Audit Committees also consider
State Street Trustees Limited the business continuity arrangements of the Company's key
service providers and review these as part of the review of
the Company's risk register.
Failure by any service provider to carry out its
obligations to the Company in accordance with the terms
of its appointment could have a materially detrimental In respect of the risks posed by the COVID-19 pandemic in
impact on the operation of the Company or administration terms of the ability of service providers to function
of its investments. The termination of the Company's effectively, the key service providers have reviewed their
relationship with any third-party service provider or operations. Having considered their arrangements and reviewed
any delay in appointing a replacement for such service service levels since the crisis has evolved, the Committees
provider could disrupt the business of the Company and Board are confident that a good level of service has been
materially and could have a material adverse effect on and will be maintained.
the Company's performance.
Regulatory, legal and statutory risk: changes in laws,
government policy or regulations
The Company is subject to laws, government policy and
regulations enacted by national and local governments.
Any change in the law, regulation or government policy The Company mitigates any such failure by delegating key
affecting the Company may have a material adverse effect operational tasks to specialist third-party service providers
on the value of its investments, its ability to carry on combined with close oversight and monitoring through the Audit
its business and successfully pursue its investment Committee.
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policy and on its earnings and returns to Shareholders.
The Investment Manager monitors investment movements, the
In particular, the Company is required to comply with level and type of forecast income and expenditure and the
certain requirements that are applicable to listed amount of proposed dividends to ensure that the provisions of
closed- ended investment companies, including Section Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not
1158 of the Corporation Tax Act 2010. Any failure to breached. The results are reported to the Board at each
comply may potentially result in a loss of investment meeting.
trust company status.
Compliance with the accounting rules affecting investment
The Company must comply with the Listing Rules, trusts is also carefully and regularly monitored.
Prospectus Rules, the Disclosure Guidance and
Transparency Rules, the Market Abuse Regulation (MAR)
and the rules of the London Stock Exchange. Any failure
in future to comply with any future changes to such The Company Secretary, Investment Manager and the Company's
rules and regulations may result in the shares being professional advisers provide regular reports to the Board in
suspended from trading on the London Stock Exchange. respect of compliance with all applicable rules and
regulations. The Board and the Investment Manager also monitor
changes in government policy and legislation which may have an
impact on the Company.
MAR can be defined as Regulation (EU) No 596/2014 of the
European Parliament on market abuse, otherwise known as
the Market Abuse Regulation, or "MAR". It requires the
Board of the Company to adopt certain processes to The risk to the Company of failure to comply with MAR is
ensure that, inter alia, price sensitive information mitigated by close Board oversight and monitoring through the
must be, subject to certain exemptions, promptly compliance function and controls monitoring team at the
disclosed to the public via a regulatory news service in Investment Manager.
order to ensure an orderly market in the Company's
shares.
Sustainability risk
Sustainability risk means exposure to an environmental,
social or governance ("ESG") event or condition that, if Please refer to the 'Sustainability risk and investment
it occurs, could cause an actual or a potential material process' section below for further details.
negative impact on the value of an investment.
Russia-Ukraine risk
-- Sanction Controls - All private assets undergo
pre-trade screening by the financial crime team, ensuring
that all Company investments adhere to relevant financial
Whilst stock selection decisions taken by the Investment crime compliance rules, including anti-money laundering
Manager have always required careful consideration of and international sanction rules. Additionally, for our
geopolitical risks, the severity and wide reaching publicly traded investments, pre-trade restrictions are
economic implications of Russia's invasion of Ukraine, applied into our trading systems to promptly reflect any
warrant focus on a stand-alone basis. Economic sanctions international sanction announcements.
as well as the disruption to business activity in the -- Credit Research - The Investment Manager's
region are set to create both first and second order in-house credit research team has conducted analysis to
effects across a wide range of sectors, particularly in identify investments that may have exposure to Russia,
mainland Europe. The inflationary effects of rising Ukraine or Belarus. Whilst the Company's portfolio has no
commodity prices also threaten to impact the operations, direct investment exposure in these countries, further
productivity and profitability of businesses whilst analysis has identified some investments that may be
restricting wider economic growth. The Company's affected, although the look-through exposure at portfolio
portfolio has no direct investment exposure in Russia, level is immaterial.
Ukraine or Belarus. -- The Company's investment strategy does not lead
it to invest directly in Emerging Market assets.
Viability statement
Ahead of the Company's fifth annual general meeting in 2024, the Board will formulate and submit to Shareholders proposals (which may constitute a tender offer or other method of distribution) to provide Shareholders with an opportunity to realise the value of their Ordinary Shares at NAV per Ordinary Share less costs. In all circumstances, the Board will seek to balance the interests of both continuing Shareholders and those electing to realise their investment with a view to minimising any reduction in the overall size of the Company.
The Directors remain confident in the Company's ability to achieve its investment objective. On this basis and notwithstanding the value realisation opportunity in 2024, the Directors have elected to review the viability of the Company for a five-year period. This is linked to the weighted average life of the Debt Instruments in the Company's portfolio.
In assessing the viability of the Company over this five-year period, the Directors have considered the current position of the Company and a number of factors. Most importantly, they have weighed the characteristics of a closed-ended fund and the investment policy of the Company against the risks the Company faces as set out in this Strategic Report. The Directors have evaluated scenarios of current and possible future circumstances including the uncertainty of the potential duration of the COVID-19 pandemic, its impact on the global economy and the prospects for the Company's portfolio.
The Directors have assumed that neither the closed- ended structure of the Company, its investment policy nor the risks it faces are likely to change substantially, or for the worse with respect to the viability of the Company, over the five-year period they have selected for the purposes of this viability statement. The Directors have also assumed that the Company will continue to maintain a sufficient level of liquidity and to generate substantial income for the foreseeable future in order to meet its liabilities. As the Directors are ultimately responsible for ensuring that the investment policy of the Company is followed by the Investment Manager, they are confident in making these assumptions about the future of the Company.
The Company is an investment trust, not a trading company, and it invests in a diversified portfolio. As a closed-ended fund, it is not subject to redemptions by Shareholders other than, potentially, the 2024 value realisation opportunity.
The Company's portfolio also generates substantial levels of income to meet its expenses, which are largely fixed overheads that represent a small percentage of its net assets. Based on their assessment of the nature of the Company, its investment policy and financial resources, the Directors have a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due over the next five years.
Going concern statement
The activities of the Company, together with the factors likely to affect its future development, including its performance, financial position, cash flows and liquidity position, are described in the Strategic Report.
In addition, the Company's policies and processes for managing its key financial risks are described in note 13.
As at 31 December 2021, the Company's total assets less current liabilities were GBP143.76 million (31 December 2020: GBP146.63 million and total current assets less current liabilities were GBP4.3 million (31 December 2020: GBP6.5 million). The Directors have reviewed the financial projections of the Company from the date of this report, which shows that the Company will be able to generate sufficient cash flows in order to meet its liabilities as they fall due.
As a consequence, the Directors believe that the Company continues to be well placed to manage its business risks successfully. In assessing the going concern basis of accounting, the Directors have also considered the COVID-19 pandemic and the impact this may have on the Company's investments and the Company's NAV. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and for a period of 12 months from the date of the approval of this Annual Report. Accordingly, they continue to adopt the going concern basis in preparing this Annual Report and Accounts.
Investment management and third-party service provider arrangements
The Board has overall responsibility for the Company's activities, including the review of investment activity and performance and the control and supervision of all suppliers of services to the Company, including the Investment Manager. It is also responsible for the determination of the Company's investment policy and strategy and the Company's system of internal and financial controls, including ensuring that commercial risks and financing needs are properly considered and that the obligations of a public limited company are adhered to.
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To assist the Board in the operations of the Company, arrangements have been put in place to delegate authority for the performance of day-to-day operations of the Company to the Investment Manager and other third-party service providers. The Board has appointed the Investment Manager to manage the Company's investment portfolio within guidelines set by the Board.
The Investment Manager is in frequent contact with the Board and supplies the Directors with regular updates on the Company's activities and detailed reports at each Board meeting. Investment Manager
The Company has appointed M&G Alternatives Investment Management Limited (the "Investment Manager") to act as the Company's Alternative Investment Fund Manager (AIFM) for the purposes of the AIFM Directive and, accordingly, the Investment Manager is responsible for providing discretionary portfolio management and risk management services to the Company.
The Investment Management Agreement dated 26 September 2018 is for an initial term of five years from 14 November 2018 and thereafter subject to termination on not less than six months' written notice by either party. The Investment Management Agreement can be terminated at any time in the event of the insolvency of the Company or the Investment Manager or in the event that the Investment Manager ceases to be authorised and regulated by the FCA (if required to be so authorised and regulated to continue to carry out its duties under the Investment Management Agreement).
The Investment Manager is entitled to receive from the Company an investment management fee, which is calculated and paid quarterly in arrears at an annual rate of 0.7% per annum of the prevailing published NAV. The investment management fee was increased from 0.5% to 0.7% on 1st April 2021 to reflect the Board's consensus that the portfolio was appropriately positioned to meet the Company's medium term annualised dividend target of LIBOR plus 4%, as outlined in the Investment Management Agreement.
Where the Company invests in a collective investment vehicle that is managed or advised by an M&G entity, such as the M&G European Loan Fund, the Investment Manager reduces its investment management fee by the amount of any equivalent management fee that is charged to such collective investment vehicle or such entity rebates its management fee such that the Investment Manager ensures the Company is not charged twice. The above arrangement does not apply to any other fees or expenses charged to the Company or any such entity in which it invests.
The Investment Manager is also entitled to be paid half of any arrangement fee charged by the Company to the issuer of a Debt Instrument in which the Company invests. The balance of any arrangement fee is retained by the Company.
Continuing appointment of Investment Manager
As at the date of this Report, the Directors are of the opinion that the Investment Manager has executed the Company's investment strategy according to the Board's expectations. Accordingly, the Directors believe that the continuing appointment of M&G Alternatives Investment Management Limited as the Investment Manager of the Company, on the terms agreed, is in the best interests of the Company and its Shareholders as a whole.
Administrator
Under an Administration Agreement dated 26 September 2018, the Company has appointed State Street Bank and Trust Company to act as administrator. The administrator provides day-to-day administration of the Company and is also responsible for the Company's general administrative functions, including the calculation and publication of the NAV and maintenance of the Company's accounting and statutory records.
The Administration Agreement is terminable, inter alia, upon not less than six months' written notice. The Administration Agreement is also terminable immediately upon the occurrence of certain standard events, including the insolvency of the Company or the Administrator or a party committing a material breach of the Administration Agreement (where such breach has not been remedied within 30 calendar days of written notice being given).
Depositary
Under a Depositary Agreement dated 26 September 2018, the Company has also appointed State Street Trustees Limited as depositary to provide depositary services to the Company, which will include safekeeping of the assets of the Company. The Depositary is permitted to delegate (and authorise its delegates to sub-delegate) the safekeeping of the assets of the Company.
The Administrator and Depositary are entitled to a combined fee (the "State Street Fee"). The State Street Fee shall be up to 0.08% of the NAV per annum. The fee is subject to a minimum rate, whereby if the NAV is less than GBP250 million, the fee will be calculated as if the NAV were GBP250 million. The State Street Fee is calculated monthly and payable monthly in arrears.
Custodian
The Depositary has delegated safekeeping duties as set out in the AIFM Directive and the FCA Handbook to State Street Bank & Trust Company, whom it has appointed as global sub-custodian.
Registrar
The Company entered into a Registrar Agreement dated 26 September 2018 with Link Group to provide registrar services in relation to the transfer and settlement of shares. Under the agreement, the Registrar is entitled to a fee calculated on the basis of the number of Shareholders and the number of transfers processed (exclusive of any VAT). In addition, the Registrar is entitled to certain other fees for ad hoc services rendered from time to time. The Registrar Agreement was originally for an initial period of one year from the date of Initial Admission and thereafter automatically renews for successive periods of 12 months unless or until terminated by either party (a) at the end of the initial period, provided written notice is given to the other party at least 6 months prior to the end of the initial period or (b) at the end of any successive 12-month period, provided written notice is given to the other party at least six months prior to the end of such successive 12-month period.
In April 2021 the Company entered into a new Registrar Agreement with Link Group to provide registrar services in relation to the transfer and settlement of shares.
Effective from 1 May 2021, under the terms of the agreement a fixed annual fee of GBP13,000 (exclusive of VAT) will be payable. The Registrar Agreement is for a period of three years until 30 April 2024 when the fee will increase in line with the Retail Prices Index (RPI). Company Secretary
The Company entered into a Company Secretarial Services Agreement dated 26 September 2018 appointing Link Company Matters Limited ("Company Matters") as Company Secretary to provide the company secretarial functions required by the Companies Act.
Following the initial period of 12 months the Company Secretarial Agreement automatically renewed, and continues to review, for successive periods of 12 months unless or until terminated by either party at the end of any successive 12-month period, provided written notice is given to the other party at least six months prior to the end of such successive 12-month period.
Pursuant to the terms of the Company Secretarial Services Agreement, Company Matters have applied an annual inflationary increase at the rate of the Retail Prices Index prevailing at the time. With effect from 1 June 2021, the aggregate fee payable to Company Matters was GBP65,780 (exclusive of VAT). Section 172 Statement: promoting the success of the Company Overview
The Directors' overarching duty is to act in good faith and in a way that is the most likely to promote the success of the Company as set out in Section 172 of the Companies Act 2006. In doing so, Directors must take into consideration the interests of the various stakeholders of the Company and the impact the Company has on the community and the environment; take a long-term view on consequences of the decisions they make; and aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company.
Fulfilling this duty naturally supports the Company in achieving its investment objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Company explains how the Directors have discharged their duty under Section 172 below.
To ensure that the Directors are aware of and understand their duties, they are provided with the relevant information as part of their induction, as well as receiving regular and ongoing updates and training on the relevant matters. They also have continued access to the advice and services of the Company Secretary and, when deemed necessary, the Directors can seek independent professional advice.
The schedule of Matters Reserved for the Board, as well as the Terms of Reference of its committees are reviewed on at least an annual basis and further describe the Directors' responsibilities and obligations, and include any statutory and regulatory duties. The Audit Committee has the responsibility for the ongoing review of the Company's risk management systems and internal controls and, to the extent that they are applicable, risks related to the matters set out in Section 172 are included in the Company's risk register and are subject to periodic and regular reviews and monitoring. Decision-making
The Board considers the impact that any material decision will have on all relevant stakeholders to ensure that it is making a decision that promotes the long-term success of the Company, whether this be in relation to dividends, new investment opportunities, potential future fundraisings etc. Stakeholders
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The Board seeks to understand the needs and priorities of the Company's stakeholders and these are taken into account during all its discussions and as part of its decision-making. The Board has considered which parties should be deemed to be stakeholders of the Company. As the Company is an externally managed investment company and does not have any employees or customers, its key stakeholders comprise its Shareholders, regulators (including service party regulators) and service providers. The section on the following page discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account.
Board engagement
Importance
The Company has over 200 Shareholders, including institutional and
retail investors. The Board is committed to maintaining open
channels of communication and to engage with Shareholders in a
manner they find most meaningful in order to gain an understanding
of their views. These include the channels below.
AGM: The Company welcomes and encourages attendance and
participation from Shareholders at its AGMs and when possible,
Shareholders will have the opportunity to meet the Directors and
the Investment Manager and to address questions to them directly.
The Company values any feedback and questions it may receive from
Shareholders ahead of and during the AGM and will take action or
make changes, when and as appropriate.
Shareholders
Publications: the Annual Report and Half Year Report are made
available on the Company's website and the Annual Report is
circulated to Shareholders. This information is supplemented by
Continued Shareholder support and engagement are the monthly calculation and publication of the NAV per share which
critical to the continued existence of the Company is announced via the regulatory news service of the London Stock
and the successful delivery of its long-term Exchange. In addition, a monthly factsheet and/or a quarterly
strategy. newsletter is published by the Investment Manager on the Company's
website. Feedback and/or questions that the Company receives from
Shareholders help the Company evolve its reporting, aiming to
render the reports and updates transparent and understandable.
Before the Company's fifth Annual General Meeting in
2024, the Board will formulate and submit to
Shareholders proposals (which may constitute a
tender offer or other method of distribution) to Shareholder meetings: unlike trading companies, one-to-one
provide Shareholders with an opportunity to realise Shareholder meetings usually take the form of a meeting with the
the value of their Ordinary Shares at the then Investment Manager rather than members of the Board. Feedback from
prevailing NAV per Ordinary Share less costs. In all all substantive meetings between the Investment Manager and
circumstances, the Board will seek to balance the Shareholders is shared with the Board. During the year there were
interests of both continuing Shareholders and those 24 meetings with Shareholders. The Chairman, the Chairman of the
electing to realise their investment. Audit Committee or other members of the Board are available to
meet with Shareholders to understand their views on governance and
the Company's performance where they wish to do so. With
assistance from the Investment Manager and Broker during the year,
the Chairman wrote to Shareholders, offering to meet with
Shareholders or discuss any questions or observations they may
have had.
Shareholder concerns: in the event that Shareholders wish to raise
issues or concerns with the Board, they are welcome to do so at
any time by writing to the Chairman at the registered office. The
Senior Independent Director is also available as an intermediary
to Shareholders.
Investor relations updates: at every Board meeting, the Directors
receive updates from the Company's broker on the share trading
activity, share price performance and any Shareholders' feedback,
as well as an update from the Investment Manager.
Maintaining a close and constructive working relationship with the
Investment Manager is crucial, as the Board and the Investment
Manager both aim to continue to achieve consistent, long-term
returns in line with the Company's investment objective. Important
components in the collaboration with the Investment Manager,
representative of the Company's culture include those listed
below.
Other stakeholders
-- Encouraging open, honest and collaborative
The Investment Manager discussions at all levels, allowing time and space for
original and innovative thinking
Holding the Company's shares offers investors a -- Ensuring that the impact on the Investment Manager
publicly traded investment vehicle through which is fully considered and understood before any business
they can obtain exposure to the Company's decision is made
diversified portfolio. The Investment Manager's -- Ensuring that any potential conflicts of interest
performance is critical for the Company to are avoided or managed effectively
successfully deliver its investment strategy and
meet its objective.
The Board holds detailed and intensive discussions with the
Investment Manager on all key strategic and operational topics on
an ongoing basis. In addition to a monthly call there have been
numerous meetings on a range of topics including the zero-discount
policy.
Beyond this, there are regular discussions by email and calls on
various operational matters.
The Board maintains regular contact with its key external
providers and receives regular reporting from them through the
Board and committee meetings, as well as outside of the regular
The Administrator, the Company Secretary, the meeting cycle. Their advice, as well as their needs and views are
Registrar, the Depositary, the Custodian and the routinely taken into account. The Management Engagement Committee
Broker formally assesses their performance, fees and continuing
appointment at least annually to ensure that the key service
In order to function as an investment trust with a providers continue to function at an acceptable level and are
listing on the premium segment of the official list appropriately remunerated to deliver the expected level of
of the FCA and trade on the London Stock Exchange's service. The Audit Committee reviews and evaluates the control
(LSE) main market for listed securities, the Company environments in place at each service provider and assesses the
relies on a diverse range of reputable advisors for effectiveness through review of the annual assurance reports from
support in meeting all relevant obligations. each organisation. This reporting is supplemented by the view of
the Investment Manager's Supplier Management Team regarding the
control environments in operation at the providers.
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Interactions take place at least monthly including the approval of
the NAV, review of forecasts and management accounts.
Regulators (including third-party service providers'
regulators)
The Company can only operate with the approval of The Company regularly considers how it meets various regulatory
its regulators and its third- party service and statutory obligations and follows voluntary and best practice
providers' regulators who have a legitimate interest guidance. It also gives full consideration to how any governance
in how the Company operates in the market and how it decisions it makes can have an impact on its stakeholders, both in
treats its Shareholders. the shorter and in the longer term. The Company's service
providers provide regular reporting to the Company in respect of
their interaction with their own respective regulators.
Lenders
Considering how important the availability of funding is, the
Availability of funding and liquidity are crucial to Company aims to demonstrate to lenders that it is a well-managed
the Company's ability to take advantage of business, and in particular, that the Board focuses regularly and
investment opportunities as they arise. carefully on the management of risk. The Board has worked with the
Investment Manager to agree the terms of the revolving credit
facility.
Institutional investors and proxy advisers
Recognising the principles of stewardship, as promoted by the UK
The evolving practice and support of the major Stewardship Code, the Board welcomes engagement with all of its
institutional investors and proxy adviser agencies investors. The Board recognises that the views, questions from,
are important to the Directors, as the Company aims and recommendations of many institutional investors and proxy
to maintain its reputation for high standards of adviser agencies provide a valuable feedback mechanism and play a
corporate governance, which contributes to its part in highlighting Shareholders' evolving expectations and
long-term sustainable success. concerns. These are important factors for the Board in delivering
the Company's strategy.
The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a regular basis at Board meetings to ensure that they remain effective.
Examples of the Board's principal decisions taken during the year, and how the Board fulfilled its duties under Section 172 of the Act, and the related engagement activities are set out below.
Stakeholder considerations and engagement
Principal decision Long-term impact
The Board had concerns regarding the Company's discount to
NAV, and in April 2021 announced the decision to implement a
"zero discount" policy to manage the discount, or premium, to
NAV. The Board believes that it is important for Shareholders
The Board announced its Through the implementation of to be able to benefit appropriately from the Company's
intention to implement this policy, the Company will investment objective which is to generate a regular and
a "zero discount" seek to ensure that the shares attractive level of income with low asset value volatility.
policy. trade close to NAV where The Company therefore seeks to ensure that the Ordinary Shares
possible. trade close to NAV in normal market conditions through a
combination of Ordinary Share buybacks and the issue of new
Ordinary Shares, or resale of Ordinary Shares held in
treasury, where demand exceeds supply.
The Board regularly reviews the Company's cash position and
commitments taking into consideration the impact on
The Company renewed the Shareholders. The facility will be used to support the
agreement for a In line with its approach to long-term growth of the Company and in particular to fund
revolving credit balance sheet management, the investments. The facility increases the Company's net liquid
facility of GBP25 million Company has renewed its resources available for future deployment, including dividend
with State Street Bank agreement for a one-year payments to Shareholders and any repurchase of the Company's
International GmbH. multicurrency revolving credit issued share capital. The terms of the credit facility with
facility of GBP25 million. State Street Bank International GmbH contain covenants with
which the Company is regularly required to confirm to State
Street Bank International GmbH that it has remained compliant.
Continuing to develop and evolve During the year, the Nomination Committee carried out a
the Board so that it contains an successful search process for a new non-executive director,
appropriate mix of skills, resulting in the appointment of Jane Routledge as an
New appointment to the diversity and experience is Independent Non-Executive Director on 25 October 2021. The
Board. important to promote the Board agreed this appointment would promote the long-term
long-term success of the interests of the Company and further enhance the range of
Company. skills and experience of the Board members.
Culture
The Directors are of the opinion that establishing and maintaining a healthy corporate culture amongst the Board and in its interaction with the Investment Manager, Shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, transparency and integrity through ongoing dialogue and engagement with its stakeholders, principally the Investment Manager.
The Board strives to ensure that its culture is in line with the Company's purpose, values and strategy and will consider this through its annual evaluation processes. Further information relating to the Company's values is provided in the Corporate Governance Statement on page 45 of the full Annual Report and Accounts. There are also policies and procedures in place to assist with maintaining a culture of good governance that include those relating to Directors' dealings in the Company's shares, conflicts of interest, bribery and tax evasion.
The Board seeks to appoint appropriate third-party service providers and evaluates their services on a regular basis as described above. Their ongoing appointments are not only reflective of their performance by reference to their contractual and service level obligations, but also take into account the extent to which their individual corporate cultures align with those of the Company. The Board considers the culture of the Investment Manager and other stakeholders, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers. Employees, human rights and social and community issues
The Board recognises certain requirements under the Companies Act 2006 to detail information about human rights, employees and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements are not in practice applicable to the Company as it has no employees, all the Directors are non-executive and it has outsourced all operational functions to third-party service providers. The Company has therefore not reported further in respect of these provisions.
Under listing rule 15.4.29(R), the Company, as a closed- ended investment fund, is exempt from complying with the Task Force on Climate-related Financial Disclosures. Board diversity
As at 31 December 2021, the Board of Directors of the Company comprised two male directors and two female directors. The Board is an enthusiastic supporter of diversity in its composition, recognising that it brings additional benefits to the Company and its stakeholders beyond specialist skills, knowledge, experience, backgrounds and perspectives. As a result, the Board's views on diversity principles are aligned with those expressed in the Hampton-Alexander Review regarding the proportion of women on boards and also the Parker Review about ethnic representation on boards, amongst other published commentaries. It is the intention of the Board to work towards enhancement of its diversity alongside the maintenance of key skillsets as the Company grows its size over the medium term, and developments in this area will be reported to stakeholders periodically.
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It is the Board's policy that any future Board appointments will be made on the basis of merit against the specific criteria for the role being offered and there will be no discrimination on the grounds of gender, race, ethnic or national origins, religion, sexual orientation, age or disabilities. Environmental, social and governance (ESG) issues
The Company has no employees, property or activities other than investments, so its direct environmental impact is minimal. In carrying out its activities and in its relationships with service providers and their employees, the Company aims to conduct itself responsibly, ethically and fairly.
The day-to-day management of the Company's investing activities is delegated to the Investment Manager.
The Investment Manager's ESG investment principles, detailed below are used to inform and guide all investments made as an asset manager. 1. For all investments, we take into consideration environmental, social and governance ("ESG") factors thathave the potential to have a material financial impact. In addition, for ESG-related funds/ mandates we take intoconsideration ESG strategies as necessary to deliver the specific objectives as defined in the fund documentation/ investment mandate. 2. For all investments, we believe consideration of the implications for society and the environment to be part of investment stewardship and in line with our fiduciary duty to our customer. 3. We take a long-term approach, keeping in mind customer time horizons, the urgency of individual ESG issues and delivery of the firm's ESG priorities and commitments. 4. We identify ESG themes and risk factors and incorporate them into our general investment and risk management processes. 5. We are active investors and believe in active management, preferring stock selection, engagement andvoting (where relevant) over exclusion. Our aim is to invest in the solution not the problem, therefore as aresponsible investor we seek to support companies transitioning towards the creation of a more sustainable economy. 6. As an investor we are politically neutral, we do not engage in political contributions, nor do we have a direct affiliation with any political party in any country. We are committed to working with our stakeholders,including our investee companies, to help fight slavery, human trafficking, child labour or any other abuse ofhuman rights. Therefore, we take into consideration politics where they impact human rights, the rule of law, fairness and equality, and where local and/or geo-political risk impacts the risk return profile of an investment. 7. Where an investment, either by the nature of its business or by the nature of the investee company's activities or behaviours, breaches our core values, we will assess the investment under our exclusion process. Where we believe engagement and voting has been or will be ineffective in influencing positive change, we may exclude the company from our portfolios. 8. We review our ESG approach regularly in order to align with scientific and technological improvements, changes in the global economy, and the evolution of good practice, sustainability and ethics. 9. We aspire to produce research of the highest quality for our investment teams, generating market leadingproprietary research and data, integrating ESG into the investment process across all asset classes. 10. We recognise the complexity in identifying and addressing the drivers of ESG issues, given the interdependence of ESG factors, some of which are inherently subjective and where available data may not be of highquality. In such cases we adopt a pragmatic approach, balancing the implications for the economy, society and theenvironment where available information is not objective or reliable. 11. We are providers of capital to investee companies, and are not responsible for the day-to-day management of those companies. However, we are cognisant of the need to encourage good corporate governance and sustainablebusiness practices and, if necessary, vote for changes to board composition where this is not the case.
The full ESG Investment Policy document is available at www.mandgplc.com/our-business/mandg-investments/ responsible-investing-at-mandg-investments
As a signatory member to the PRI, the Investment Manager is committed to providing detailed ESG transparency to market participants in relation to its business activities. The most recent transparency report is available at www.unpri.org/signatory-directory/ mandg-investments/1483.article
Given its commitment to responsible investment, the Investment Manager has allocated significant human and financial capital to the implementation of the PRI principles.
Sustainability risk and investment process
The Board believes that sustainability risk can have a material impact on long-term investment outcomes. Sustainability risk means exposure to an environmental, social or governance ("ESG") event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment. The Company's goal is to generate the best possible risk adjusted returns for investors, taking into account all factors that influence investment performance, and therefore ESG issues are incorporated into investment decisions wherever they have a potentially meaningful impact on risk or return.
ESG factors themselves are, generally, non-financial considerations that may impact the risk, volatility and long-term return of individual investments, as well as markets as a whole. Individual investments can have both a positive and negative impact on society and the environment.
In certain contexts, ESG factors may be referred to as sustainability factors. Due to the nature of its stated investment strategy, the Company does not seek to actively promote ESG factors and does not seek to maximise portfolio alignment with ESG factors, but it nevertheless remains exposed to sustainability risks.
Impacts on the Company following the occurrence of a sustainability risk event may be numerous and will vary depending on the specific investment risk, geographical region and asset class. In general, where a sustainability risk event occurs in respect of an individual asset, there is the potential for a negative impact on, or an entire loss of, its value.
The following types of sustainability risks have the potential to materially impact the returns of the Company over time:
-- Environmental factors, which include, but are not limited to, the ability of investee companies to mitigate and adapt to climate change, the potential for higher carbon prices, exposure to increasing water scarcityand potential for higher water prices, waste management challenges, and impact on global and local ecosystems.
-- Social risks, which include, but are not limited to, product safety, supply chain management and labourstandards, health and safety and human rights, employee welfare, data & privacy concerns and increasing technological regulation.
-- Governance aspects, which include, but are not limited to, board composition and effectiveness, management incentives, management quality, ethnic and gender diversity, and stakeholder alignment.
The potential impacts of sustainability risk events on the Company's portfolio include degradation of issuer cashflow and consequent inability to meet debt servicing obligations, and inability to continue to actively and competitively participate in its chosen markets.
Sustainability risks may also affect the credit quality of an issuer. The Company has exposure to higher-yielding private debt arrangements, which may include debt securities of smaller companies, some of which may be privately owned, and thus may be less transparent in respect of environmental, social and governance and sustainability-related disclosures.
In order to ensure that sustainability risks are properly considered within the investment decision making and risk monitoring processes, to the extent that they represent potential or actual material risks and/or opportunities for maximising long-term risk-adjusted returns, the Investment Manager follows a series of environmental, social and governance investment principles described in the Investment Manager's ESG Principles Statement, which can be accessed via the Investment Manager's website.
At its quarterly meeting held on 1 February 2022, the Company resolved to approve the implementation of M&G plc's Thermal Coal Policy. This will come into effect from 27 April 2022.
M&G plc's Thermal Coal Policy seeks to exclude companies that are either unable or unwilling to transition away from thermal coal within the necessary timelines to keep the earth's average warming within the targets set by the Paris Agreement.
The portfolio of the Company does not currently have any assets that are failing the policy and require divestment. Greenhouse gas emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emission-producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. Modern slavery
The Company, as an investment vehicle, does not provide goods or services in the normal course of business and does not have customers. The Directors consider that the Company is thus not required to make a slavery or human trafficking statement under the Modern Slavery Act 2015. The Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter. Approval
The Strategic Report was approved by the Board at its meeting on 23 March 2022. The Chairman's Statement together with the Investment Manager's Report form part of this Strategic Report.
David Simpson
Chairman
23 March 2022
Statement of Directors' responsibilities in respect of the Annual Report and audited Financial Statements
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The Directors are responsible for preparing the Annual Report and audited Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK 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 ceaseoperations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for 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, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
The Directors confirm that to the best of their knowledge:
-- the Financial Statements, prepared in accordance with the applicable set of accounting standards, give atrue and fair view of the assets, liabilities, financial position and profit of the Company taken as a whole; and
-- the Strategic Report/Directors' Report include a fair review of the development and performance of thebusiness and the position of the issuer, together with a description of the principal risks that they face.
The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and audited Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and audited Financial Statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Report of the Audit Committee in the full Annual Report and Accounts. As a result, the Board has concluded that the Annual Report and audited Financial Statements for the year ended 31 December 2021, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
On behalf of the Board
David Simpson
Chairman
23 March 2022
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2021 but is derived from those accounts. The statutory accounts will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.mandg.co.uk/ creditincomeinvestmenttrust
Income statement
Year ended 31 December 2021 Year ended 31 December
2020
Note Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net (losses)/gains on investments 9 - (545) (545) - 2,714 2,714
Net gains/(losses) on derivatives 9 - 2,837 2,837 - (1,368) (1,368)
Net currency (losses)/gains (51) (145) (196) (7) 451 444
Income 3 5,565 - 5,565 5,195 - 5,195
Investment management fee 4 (965) - (965) (714) - (714)
Other expenses 5 (548) - (548) (464) - (464)
Net return on ordinary activities before finance costs and 4,001 2,147 6,148 4,010 1,797 5,807
taxation
Finance costs 6 (122) - (122) (24) - (24)
Net return on ordinary activities before taxation 3,879 2,147 6,026 3,986 1,797 5,783
Taxation on ordinary activities 8 - - - - - -
Net return attributable to Ordinary Shareholders after taxation 3,879 2,147 6,026 3,986 1,797 5,783
Net return per Ordinary Share (basic and diluted) 2 2.70p 1.49p 4.19p 2.88p 1.30p 4.18p The total column of this statement represents the Company's profit and loss account. The "Revenue" and "Capital" columns represent supplementary information provided under guidance issued by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
The Company has no other comprehensive income and therefore the net return on ordinary activities after taxation is also the total comprehensive income for the year.
The notes below form an integral part of these Financial Statements.
Statement of financial position
As at 31 December 2021 As at 31 December 2020
Note GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Investments at fair value through profit or loss 9 139,501 140,091
Current assets
Derivative financial assets held at fair value through profit or loss 9 631 225
Receivables 10 1,241 1,345
Cash and cash equivalents 10 3,473 7,278
5,345 8,848
Current liabilities
Payables 10 (1,087) (2,311)
(1,087) (2,311)
Net current assets 4,258 6,537
Net assets 143,759 146,628
Capital and reserves
Called up share capital 11 1,447 1,447
Share premium 42,217 42,217
Special distributable reserve 95,670 98,499
Capital reserve 11 3,473 3,349
Revenue reserve 952 1,116
Total shareholders' funds 143,759 146,628
Net Asset Value per Ordinary Share (basic and diluted) 2 101.44p 101.40p
The notes below form an integral part of these Financial Statements.
Approved and authorised for issue by the Board of Directors on 23 March 2022 and signed on its behalf by:
David Simpson
Chairman
Company registration number: 1469317
23 March 2022
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Statement of changes in equity
Special Total
Called up Share distributable Capital Revenue
Ordinary premium reserve reserve
Year ended 31 December reserve
2021 Share capital
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Balance at 31 December 1,447 42,217 98,499 3,349 1,116 146,628
2020
Purchase of Ordinary Shares to be held in treasury - - (2,829) - - (2,829)
Net return attributable to shareholders - - - 2,147 3,879 6,026
Dividends paid 7 - - - (2,023) (4,043) (6,066)
Balance at 31 December 2021 1,447 42,217 95,670 3,473 952 143,759
Special Total
Called up Share distributable Capital Revenue
Ordinary premium reserve reserve
Year ended 31 December reserve
2020 Share capital
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Balance at 31 December 1,300 28,229 99,000 1,968 1,735 132,232
2019
Issue of Ordinary Shares 11 147 13,945 - - - 14,092
Purchase of Ordinary Shares to be held in treasury - - (129) - - (129)
Initial public offering costs written off - 43 - - - 43
Net return attributable to shareholders - - - 1,797 3,986 5,783
Dividends paid 7 - - (372) (416) (4,605) (5,393)
Balance at 31 December 2020 1,447 42,217 98,499 3,349 1,116 146,628
The notes below form an integral part of these Financial Statements.
Cash flow statement
Note Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Cash flows from operating activities
Net profit before finance costs and taxation 6,148 5,807
Adjustments for:
Net losses/(gains) on investments 9 545 (2,714)
Net (gains)/losses on derivatives 9 (2,837) 1,368
Decrease/(increase) in receivables 104 (253)
Increase/(decrease) in payables 130 (96)
Purchases of investmentsa 9 (42,088) (78,730)
Sales of investmentsa 9 43,210 68,430
Net cash inflow/(outflow) from operating activities 5,212 (6,188)
Financing activities
Finance costs 6 (122) (24)
Issue of Ordinary Shares - 14,092
Initial public offering costs written off - 43
Purchase of Ordinary Shares to be held in treasury (2,829) (129)
Dividend paid 7 (6,066) (5,393)
Net cash (outflow)/inflow from financing activities (9,017) 8,589
(Decrease)/increase in cash and cash equivalents 10 (3,805) 2,401
Cash and cash equivalents at the start of the year 7,278 4,877
(Decrease)/increase in cash and cash equivalents as above (3,805) 2,401
Cash and cash equivalents at the end of the year 10 3,473 7,278
a Receipts from the sale of, and payments to acquire investment securities have been classified as components of cash flows from operating activities because they form part of the Company's dealing operations.
The notes below form an integral part of these Financial Statements.
Notes to the Financial Statements 1. Significant accounting policies
The Company is a public limited company incorporated in the United Kingdom and registered in England and Wales, with the registered office of Beaufort House, 51 New North Road, Exeter EX4 4EP.
The significant accounting policies, as set out below, have all been applied consistently throughout the year and the preceding year. a. Basis of accounting
The Financial Statements have been prepared on a going concern basis under the historical cost convention, modified to include certain items at fair value, and in accordance with United Kingdom Accounting Standards, including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the Association of Investment Companies ('SORP') in April 2021 "Financial Statements of Investment Trust Companies and Venture Capital Trusts".
The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and for at least the next 12 months from the date of approval of these financial statements. In forming this opinion, the Directors have considered the potential impact of COVID-19 and viability of the Company. The Directors have reviewed the liquidity of the investment portfolio, financial projections, the level of income and expenses, and key service providers' operational resilience in making their assessment. Further information is given in the Viability Statement (unaudited) and the Going Concern Statement above.
The functional and presentational currency of the Company is pound sterling because that is the currency of the primary economic environment in which the Company operates.
All values are recorded to nearest thousands, unless otherwise stated. b. Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Financial assets and liabilities
All financial assets and liabilities are classified as at fair value through profit or loss (FVTPL) and are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar Debt Instrument.
Changes in the fair value of financial instruments held at FVTPL and gains and losses on disposal are recognised as capital.
Financial assets and liabilities are offset in the statement of financial position only when there exists a legally enforceable right to set off the recognised amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
With the exception of some hedging instruments, other Debt Instruments not meeting conditions of being 'basic' financial instruments are measured at FVTPL.
Commitments to make and receive loans that meet the conditions mentioned above are measured at cost (which may be nil) less any impairment. They are recorded and disclosed at the date of the legal commitment and recognised upon funding.
Financial assets are derecognised only when (a) the contractual rights to the cash flows from the financial asset expire or are settled, (b) the Company transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or (c) the Company, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.
Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the Income Statement. Derivative returns are recognised as revenue or capital depending on their nature.
Fair value measurement
The best evidence of fair value is a quoted price for an identical asset in an active market. When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If the market is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, the fair value is estimated by using a valuation technique. c. Impairment of assets
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described below.
Non-financial assets
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An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use.
Where indicators exist for a decrease in impairment loss previously recognised for assets other than goodwill, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment been recognised. d. Tax
Current tax is accounted for at the appropriate rate of corporation tax. The tax accounting treatment follows the principal amounts involved.
Deferred tax is recognised in respect of all timing differences between the treatment of certain items for tax and accounting purposes that have originated but not reversed at the balance sheet date.
Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. e. Income and expenses
Interest from Debt Instruments is recognised as revenue by reference to the coupon payable adjusted to spread any premium or discount on purchase over its remaining life. Other interest income is recognised as revenue on an accruals basis. Income from investment funds is recognised in revenue when the right to receive it is established. Expenses not incidental to the purchase or sale of investments are recognised on an accruals basis and charged to revenue. Rebate of management fees incurred by investment funds managed by M&G Alternatives Investment Management Limited are recognised on an accruals basis as revenue or capital in accordance with the underlying scheme's distribution policy. f. Finance cost
Finance costs are recognised on an accruals basis and are charged to revenue. g. Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date.
Other exchange differences are recognised in profit or loss in the year in which they arise.
All gains and losses on the translation of foreign currency are recognised as revenue or capital in the Income Statement depending on the underlying nature of the transactions. h. Cash and cash equivalents
Cash and cash equivalents are defined as cash and short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risk of change in value.
They also include unfunded commitments on investments not classified under financial assets. i. Share capital and reserves
Called up Ordinary Share capital
Called up Ordinary Share capital represents the nominal value of Ordinary Shares issued.
Share premium
Share premium represents the excess over nominal value of shares issued, net of expenses of the share issue, except where amounts have been cancelled in accordance with Section 610 of the Companies Act 2006 and transferred to special distributable reserve.
Special distributable reserve
Share premium of GBP99,000,001 was cancelled on 12 February 2019 and transferred to the special distributable reserve, in accordance with Section 610 of the Companies Act 2006. The Company may, at the discretion of the Board, pay all or part of any future dividends out of this special distributable reserve, taking into account the Company's investment objective. The costs of repurchasing Ordinary Shares has been funded by the special distributable reserve.
Capital reserve
Capital reserve reflects any:
-- gains or losses on the disposal of investments;
-- exchange differences of a capital nature;
-- increases and decreases in the fair value of investments held at the year end.
This reserve can also be used for distributions by way of a dividend and for funding the cost of repurchasing Ordinary Shares.
Revenue reserve
Revenue reserve reflects all income and expenditure which are recognised in the revenue column of the Income Statement and is distributable by way of dividends. It can also be used for funding the cost of repurchasing Ordinary Shares. j. Investment management fees
Investment management fees are recognised on an accruals basis and are charged to revenue. k. Accounting judgements, estimates and assumptions
The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that affect the amounts recognised in the Financial Statements. However, uncertainty about these judgements, assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future years.
Whilst estimates are based on best judgement using information and financial data available the actual outcome may differ from these estimates.
No significant judgements, estimates or assumptions have been required in the preparation of the accounts for the current year. 2 Returns and net asset value (NAV)
Year ended 31 December 2021 Year ended 31 December 2020
Revenue return
Revenue return attributable to Ordinary Shareholders (GBP'000) 3,879 3,986
Weighted average number of shares in issue during the year 143,757,774 138,289,698
Revenue return per Ordinary Share (basic and diluted) 2.70p 2.88p
Capital return
Capital return attributable to Ordinary Shareholders (GBP'000) 2,147 1,797
Weighted average number of shares in issue during the year 143,757,774 138,289,698
Capital return per Ordinary Share (basic and diluted) 1.49p 1.30p
Net return
Net return per Ordinary Share (basic and diluted) 4.19p 4.18p
NAV per Ordinary Share
Net assets attributable to Ordinary Shareholders (GBP'000) 143,759 146,628
Number of shares in issue at year end 141,723,022 144,605,771
NAV per Ordinary Share 101.44p 101.40p
3 Income
Year ended 31 December 2021 Year ended 31 December 2020
GBP'000 GBP'000
Income from investments
Interest income from Debt Instruments 4,936 4,633
Distributions from investment funds 521 468
Management fee rebate 105 78
5,562 5,179
Other income
Interest from cash and cash equivalents 3 16
5,565 5,195
4 Investment management fee
Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Investment management fee 965 714
The amount outstanding at the year end is shown in note 10.
The basis for calculating the investment management fee is set out above. 5 Other expenses
Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Revenue expenses
Directors' fees 118 110
Legal fees 5 7
Printing and postage 5 -
Registrar's and secretarial fees 94 102
Administration fees 76 77
Broker fees 62 57
Other 113 45
473 398
Auditors' remuneration:
- Audit services 62 54
- Non-audit servicesa 13 12
548 464
a Non-audit fees (including VAT) payable to the auditor in respect of the agreed upon procedures on the Half Year Report as of 30 June 2021 are GBP12,600 (30 June 2020: GBP12,000). The agreed upon procedures did not constitute an audit engagement or a review of the Half Year Report. 6 Finance costs
Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Commitment fee 75 15
Arrangement fees 13 3
Legal fees 34 6
122 24
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On 19 October 2020 the Company entered into a GBP25 million revolving credit facility agreement with State Street Bank International GmbH. On 18 October 2021 the Company renewed the credit facility on the existing terms, with the new credit facility expiring on 17 October 2022. As at 31 December 2021 no amounts were drawn down. 7 Dividends
Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Revenue
2019 second interim interest distribution of 1.33p - 1,729
2020 first interim interest distribution of 0.72p - 936
2020 second interim interest distribution of 0.63p - 912
2020 third interim interest distribution of 0.71p - 1,028
2020 fourth interim interest distribution of 0.77p 1,114 -
2021 first interim interest distribution of 0.63p 911 -
2021 second interim interest distribution of 0.71p 1,017 -
2021 third interim interest distribution of 0.70p 1,001 -
4,043 4,605
Capital
2019 second interim dividend of 0.32p - 416
2020 first interim dividend of 0.13p - 169
2020 second interim dividend of 0.14p - 203
2020 fourth interim dividend of 1.18p 1,706 -
2021 first interim dividend of 0.11p 159 -
2021 second interim dividend of 0.05p 72 -
2021 third interim dividend of 0.06p 86 -
2,023 788
Set out below are the total dividends paid and proposed in respect of the year, which forms the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered.
Year ended Year ended
31 December 2021 31 December 2020
GBP'000 GBP'000
Interest distributions paid of 2.04p (2020: 2.06p) 2,929 2,876
Dividend distributions paid of 0.22p (2020: 0.27p) 317 372
Interest distributions declared of 0.67p (2020: 0.77p) 941 1,114
Dividend distributions declared of 1.11p (2020: 1.18p) 1,558 1,706
5,745 6,068
On 26 January 2022 the Board declared a fourth interim dividend of 1.78p per Ordinary Share for the year ended 31 December 2021, which was paid on 25 February 2022 to Ordinary Shareholders on the register on 4 February 2022. The ex-dividend date was 3 February 2022. The amount shown in the table above for distributions declared is based on 140,373,022 Ordinary Shares in issue.
In accordance with FRS 102, Section 32, 'Events After the End of the Reporting Period', the 2021 fourth interim dividend has not been included as a liability in this set of financial statements. 8 Taxation on ordinary activities
Year ended 31 December 2021 Year ended 31 December 2020 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Foreign tax - - - - - -
The corporation tax rate was 19.0%. The tax charge for the year differs from the charge resulting from applying the standard rate of corporation tax in the UK for an investment trust company. The differences are explained below:
Year ended 31 December 2021 Year ended 31 December 2020 Revenue Capital Total Revenue Capital Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Net return on ordinary activities before taxation 3,879 2,147 6,026 3,986 1,797 5,783 Corporation tax at standard rate of 737 408 1,145 757 341 1,098 19.0% Effects of: Net losses/(gains) on investments - 103 103 - (516) (516) Net (gains)/losses on derivatives - (539) (539) - 260 260 Tax deductible interest distributions (737) - (737) (757) - (757) Net foreign currencies losses/(gains) - 28 28 - (85) (85) Total tax charge - - - - - -
As at 31 December 2021, the Company had unutilised management expenses of GBPnil (2020: GBPnil) carried forward. Due to the Company's status as an investment trust and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments. 9 Investments held at fair value through profit or loss (FVTPL)
As at 31 December 2021
As at 31 December 2020 GBP'000
GBP'000
Opening valuation 140,316 127,316
Analysis of transactions made during the year
Purchases at cost 40,734 80,084
Sale proceeds (43,210) (68,430)
Gains on investments 2,292 1,346
Closing valuation 140,132 140,316
Closing cost 139,848 138,257
Closing investment holding gains 284 2,059
Closing valuation 140,132 140,316
The Company received GBP43,210,000 (2020: GBP68,430,000) from investments sold in the year. The book cost of these investments when they were purchased was GBP41,575,000 (2020: GBP65,840,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
As at As at
31 December 2021 31 December 2020
GBP'000 GBP'000
Gains on investments
Net (losses)/gains on disposal of investments (545) 2,714
Net gains/(losses) on derivatives 2,837 (1,368)
Gains on investments 2,292 1,346
As at As at
31 December 2021 31 December 2020
GBP'000 GBP'000
Closing valuation
Investments at fair value through profit or loss 139,501 140,091
Derivative financial assets held at fair value through profit or loss 631 225
Closing valuation 140,132 140,316
10 Receivables, cash and cash equivalents and Payables
As at 31 December 2021 As at 31 December 2020
GBP'000 GBP'000
Receivables
Accrued income 1,108 1,204
Prepaid expenses 53 41
Management fee rebate 80 82
Other receivables - 18
Total receivables 1,241 1,345
Cash and cash equivalents
Cash at bank 2,526 2,269
Amounts held at futures clearing houses 345 1,009
Cash on deposit 602 4,000
Total cash and cash equivalents 3,473 7,278
Payables
Purchases for future settlement - 1,354
Expenses payable and deferred income 314 278
Management fee payable 771 677
Other payables 2 2
Total payables 1,087 2,311 11 Called up share capital
As at 31 December 2021 As at 31 December 2020
Number of Nominal Number of Nominal
value value
shares shares
GBP'000 GBP'000
Ordinary Shares of 1p
Ordinary Shares in issue at the beginning of the year 144,605,771 1,446 130,000,001 1,300
Ordinary Shares issued during the year - - 14,745,770 147
Purchase of Ordinary Shares held in treasury (2,882,749) (29) (140,000) (1)
Ordinary Shares in issue at the end of the year 141,723,022 1,417 144,605,771 1,446
Treasury Shares (Ordinary Shares of 1p)
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Treasury Shares at the beginning of the year 140,000 1 - - Purchase of Ordinary Shares held in treasury 2,882,749 29 140,000 1 Treasury Shares at the end of the year 3,022,749 30 140,000 1 Total Ordinary Shares in issue and in treasury at the end of 144,745,771 1,447 144,745,771 1,447 the year
The analysis of the capital reserve is as follows:
Year ended 31 December 2021 Year ended 31 December 2020
Realised Investment Total Realised Investment Total
capital capital
holding reserve holding reserve
capital gains capital gains
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
Capital reserve at the beginning of the 1,290 2,059 3,349 (265) 2,233 1,968
year
Gains on realisation of investments at 4,067 - 4,067 1,520 - 1,520
fair value
Realised currency (losses)/gains during (145) - (145) 451 - 451
the year
Movement in unrealised gains - (1,775) (1,775) - (174) (174)
Dividends paid (2,023) - (2,023) (416) - (416)
Capital reserve at the end of the year 3,189 284 3,473 1,290 2,059 3,349
The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts', 2021. 12 Related party transactions
M&G Alternatives Investment Management Limited, as Investment Manager, is a related party to the Company. The management fee payable to the Investment Manager for the year is disclosed in the income statement, in note 4 and amounts outstanding at the year end are shown in note 10.
The Company holds an investment in M&G European Loan Fund which is managed by M&G Investment Management Limited. At the year end this was valued at GBP17,519,827 (2020: GBP17,287,306) and represented 12.45% (2020: 11.98%) of the Company's investment portfolio.
The Directors of the Company are related parties. The details of the fees payable to Directors and details of Directors' shareholdings are given in the Directors' Remuneration Report in the full Annual Report and Accounts. 13 Financial instruments
In pursuing the Company's objectives, the Company accepts market price risk and interest rate risk, in relation to the portfolio of investments. Since the Company's investment objectives are to deliver returns over the long term, transactions with the sole intention of realising short-term returns are not undertaken.
The quantitative data disclosed is representative of the Company's exposure to risk throughout the year. The AIFM attempts to gain the best and most consistent returns for clients via the following:
-- a bottom-up approach, centred around a detailed evaluation of individual investments; and
-- diversification across issuer, to minimise the impact of default.
Portfolio management decisions are based on an in-house credit assessment and instrument rating which is carried out by the AIFM's credit analysts.
Market risk
Market risk embodies the potential for both losses and gains and includes foreign currency risk, interest rate risk and price risk, which are discussed in detail under separate headings within this note.
Market risk arises mainly from uncertainty about future values of financial instruments influenced by other price, currency and interest rate movements. It represents the potential loss the Company may suffer through holding market positions in investments in the face of market movements.
Management of market risk
The Board meets formally at least four times a year with the Investment Manager to review, inter alia, the Company's strategy and performance, the composition of the investment portfolio and the management of risk. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company's investment objective and seeks to ensure that any investments meet an acceptable risk/reward profile.
Market risk arising from foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The fair values of the Company's monetary items which have foreign currency exposure at 31 December 2021 are shown below.
2021 2020
Australian US Australian US
Euro New Zealand dollar Euro dollar
dollar dollar dollar
GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
Debtors 14 112 - 53 18 163 61
Investments 4,059 14,319 2,312 15,210 4,198 15,710 14,802
Total foreign currency exposure on net 4,073 14,431 2,312 15,263 4,216 15,873 14,863
monetary items
The Company is exposed to risks that the exchange rate of its reporting currencies relative to other currencies may change in a manner which has an adverse effect on the value of the portion of the Company's assets which are denominated in currencies other than their own currencies. Typically, the fund manager will substantially hedge these risks using foreign exchange forward contracts.
The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to Shareholders to an increase of or decrease of 5% in exchange rates. A 5% increase in the value of the fund's currency exposure would have the effect of increasing the return and net assets by GBP1,786,000 (2020: GBP1,727,000). A 5% decrease would have an equal and opposite effect.
Increase in Decrease in Increase in Decrease in
exchange exchange exchange exchange
rates rates rates rates
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Income statement
Revenue return (9) 9 (9) 9
Capital return 1,795 (1,795) 1,736 (1,736)
Total change to net return on ordinary activities 1,786 (1,786) 1,727 (1,727)
after tax
Change to net assets attributable to shareholders 1,786 (1,786) 1,727 (1,727) Market risk arising from interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Company's investments may be subject to interest rate risk. When interest rates decline, the value of fixed rate obligations can be expected to rise, and conversely when interest rates rise, the value of fixed rate obligations can be expected to decline. In general, if prevailing interest rates fall significantly below the interest rates on any Debt Investments held by the Company, such investments are more likely to be the subject of prepayments than if prevailing rates remain at or above the rates borne by such investments.
Since the global financial crash of 2007-08 there has been a sustained period of very low levels of central bank-set interest rates. It is expected that central banks will raise their interest rates in the near future. For investments that have a fixed rate of return, any such interest rate rises may negatively impact the returns on the investments and the returns realised by the investors.
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The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to shareholders to an increase or decrease of 2% in interest rates. As at 31 December 2021 the prevailing base rate was 0.25%. The decrease in interest rates illustrated below of 2% is reasonably possible based on observation of market conditions and historic trends. The sensitivity analysis is based on the Company's bond holdings at each reporting date, with all other variables held constant.
Decrease in Increase in Decrease in Increase in
interest rates interest rates interest rates interest rates
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Income statement
Revenue return 14 (14) 15 (15)
Capital return 2,859 (2,859) 2,947 (2,947)
Total change to net return on ordinary 2,874 (2,874) 2,962 (2,962)
activities after tax
Change to net assets attributable to 2,874 (2,874) 2,962 (2,962)
shareholders Market risk arising from other price risk
Market price risk includes changes in market prices, other than those arising from interest rate risk, which may affect the value of investments.
The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets attributable to shareholders to an increase or decrease of 10% in the fair value of the Company's investments. This level of change is considered to be reasonably possible based on observation of market conditions and historic trends. The sensitivity analysis is based on the Company's investments at each reporting date, with all other variables held constant.
Increase in fair Decrease in fair Increase in fair Decrease in fair
value value value value
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Income statement
Revenue return (70) 70 (70) 70
Capital return 13,950 (13,950) 14,009 (14,009)
Total change to net return on ordinary 13,880 (13,880) 13,939 (13,939)
activities after tax
Change to net assets attributable to 13,880 (13,880) 13,939 (13,939)
shareholders
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company invests in illiquid public and private Debt Instruments. Such investments may be difficult to value or realise (if at all) and therefore the market price that is achievable for such investments might be lower than the valuation of these assets and as reflected in the Company's published NAV per Ordinary Share.
The contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be required are as follows:
Three months Three months
Total Total
or less or less
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Creditors: amounts falling due within one year
Purchases awaiting settlement - - 1,354 1,354
Other creditors 1,087 1,087 957 957
1,087 1,087 2,311 2,311
Credit risk
Credit risk is the risk that one party to a financial instrument or contract will cause a financial loss for the other party by failing to discharge an obligation. In the case of invested assets this is the potential for the reduction in the value of investments which relates to the risk of an issuer being unable to meet its obligations, whilst for trading activities this relates to the risk that the counterparty to any contract the Company enters into being unable to meet its obligations causing loss.
The Investment Manager maintains a credit risk policy and standards which set out the assessment and measurement of credit risk, compliance with which is monitored, and exposures and breaches are reported daily by the Risk team.
The policy is reviewed on an annual basis to ensure that it remains fit for purpose and relevant to changes in the risk environment.
Investment mandates specify explicitly the counterparty risk appetite for cash on deposit, foreign exchange and OTC trading whilst other counterparty risk is taken for the purposes of efficient portfolio management and reduction in risk.
Management of counterparty risk
To mitigate counterparty risk, the AIFM follows the standards below:
-- Preference for 'high-quality' rated counterparties, mainly banks with short-term A1/P1 ratings and banks rated A or better.
-- Limited exposure to each counterparty to diversify risk.
-- Collateral taken from counterparties and posted against their default where appropriate.
-- Regular monitoring of counterparty rating.
-- Capability to rapidly reduce exposure on adverse market intelligence.
-- Trading on Delivery Versus Payment (DVP) basis.
Credit risk exposure
The following amounts shown in the statement of financial position represent the maximum exposure to credit risk at the year end.
Balance sheet Maximum exposure Balance sheet Maximum exposure
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss 139,501 140,321 140,091 141,602
Current assets
Other receivables 1,241 3,106 1,345 2,834
Cash and cash equivalents 3,473 6,944 7,278 11,362
Cash at bank and in hand 144,215 150,371 148,714 155,798
No debtors are past their due date and none have been written down or deemed to be impaired.
Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried at fair value or the amount in the Statement of Financial Position is a reasonable approximation of fair value. 14 Fair value hierarchy
Under FRS 102 an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the levels stated below.
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, spread premium, credit ratings etc).
-- Level 3: significant unobservable inputs (including the Company's own assumptions in determining the fairvalue of investments, discounted cashflow model or single broker quote).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.
The financial assets measured at FVTPL are grouped into the fair value hierarchy as follows:
As at 31 December 2021 As at 31 December 2020
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at FVTPL
Debt Instruments - 54,382 67,599 121,981 - 87,572 35,232 122,804
Investment in funds - 17,520 - 17,520 - 17,287 - 17,287
Financial liabilities at FVTPL
Derivatives (36) 667 - 631 (369) 594 - 225
Net fair value (36) 72,569 67,599 140,132 (369) 105,453 35,232 140,316
Valuation techniques for Level 3
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The debt investments within the Company utilise a number of valuation methodologies such as a discounted cash flow model, which will use the relevant credit spread and underlying reference instrument to calculate a discount rate.
Unobservable inputs typically include spread premiums and internal credit ratings.
Some debt instruments are valued at par and are monitored to ensure this represents fair value for these instruments. On a monthly basis these instruments are assessed to understand whether there is any evidence of market price movements, including impairment or any upcoming refinancing.
In addition, some are priced by a single broker quote, which is typically the traded broker, who provides an indicative mark.
Level 3 reconciliation
The following table shows a reconciliation of all movements in fair value of financial instruments categorised within Level 3 between the beginning and the end of the financial year:
Level 3 Level 3
31 December 2021 31 December 2020
GBP GBP
GBP'000 GBP'000
Financial assets at FVTPL
Opening balance 35,232 16,706
Net realised losses (549) (293)
Purchases 25,320 21,313
Sales (7,477) (2,786)
Transfer in/(out) Level 3 15,073 292
Closing balance 67,599 35,232
During the year ended 31 December 2021, following a review of M&G's internal guidance for fair value levelling, certain portfolio constituents were transferred from Level 2 to Level 3 in recognition of the level of unobservable inputs that were necessarily applied to their valuation.
15 Capital commitments
There were outstanding unfunded investment commitments of GBP2,866,000 (2020: GBP3,494,000) at the year end.
As at 31 December 2021 As at 31 December 2020
GBP'000 GBP'000
Bayswater RD Mercury Var. Rate 31 May 2024 1,862 -
Intu (SGS) Finco Limited Var. Rate 31 Mar 2024 229 -
Bayswater RD Mercury Var. Rate 1 May 2024 173 -
Kaveh Ventures LLC Var. Rate 16 May 2022 163 -
Valentine Senior Var. Rate 7 Mar 2022 133 133
Jamshid Ventures Var. Rate 23 Jul 2023 125 786
Alchemy Copyrights Var. Rate 16 Dec 2022 109 -
Bread Holdings Var. Rate 1 Sep 2028 72 -
Lewisham Var. Rate 12 Feb 2023 - 1,198
Westbourne 2016 1 WR Senior Var. Rate 30 Sep 2023 - 598
Sonovate Var. Rate 12 Apr 2021 - 560
Gate 1 Var. Rate 4 Jun 2022 (Junior) - 110
Gate 1 Var. Rate 4 Jun 2022 (Senior) - 94
Greensky Var. Rate 11 Dec 2023 - 15
2,866 3,494 16 Capital management policies and procedures
The Company's capital management objectives are:
-- to ensure that the Company will be able to continue as a going concern; and
-- to generate a regular and attractive level of income with low asset value volatility by investing in a diversified portfolio of public and private debt instruments.
The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
-- the nature and planned level of gearing, which takes account of the Investment Manager's views on themarket;
-- the issue and buy back share capital within limits set by the shareholders in general meeting; and
-- the extent to which revenue in excess of that which is required to be distributed should be retained.
National Storage Mechanism
A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
For the purposes of complying with the Disclosure and Transparency Rules ("DTRs") and the requirements imposed on the Company through the DTRs, the Annual Report, as will be submitted to the National Storage Mechanism, contains the full text of the Directors' report, the Corporate governance statement, the Directors' remuneration report, the Report of the Audit Committee and the Independent auditors' report, which are excluded from this announcement.
Annual General Meeting Arrangements
The Company's Annual General Meeting will be held at 11:30am on Wednesday, 8 June 2022 at the offices of M&G Alternatives Investment Management Limited, 10 Fenchurch Avenue, London EC3M 5AG.
Company information Directors (all non-executive)
David Simpson (Chairman)
Richard Boléat (Chairman of the Audit Committee, Senior Independent Director)
Barbara Powley
Jane Routledgea a. Appointed on 25 October 2021. AIFM and Investment Manager
M&G Alternatives Investment Management Limited (MAGAIM)b
10 Fenchurch Avenue, London EC3M 5AG
Website: www.mandg.co.uk
Telephone: +44 (0) 800 390 390 Administrator
State Street Bank and Trust Companyb
20 Churchill Place, London E14 5HJ Company Secretary and registered office
Link Company Matters Limited
Beaufort House, 51 New North Road, Exeter EX4 4EP
Telephone: 01392 477 500 Broker
Winterflood Securities Limitedb
The Atrium, Cannon Bridge House, 25 Dowgate Hill,
London EC4R 2GA Solicitors
Herbert Smith Freehills LLPb
Exchange House, Primrose Street, London EC2A 2EG Auditor
Deloitte LLP
Saltire Court, 20 Castle Street, Edinburgh EH1 2DB Registrar and transfer office
Link Group
Shareholder Services Department
10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL
Telephone: 0371 664 0300
(Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate.
Lines are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales).
Email: shareholderenquiries@linkgroup.co.uk
Website: www.linkgroup.eu Depositary
State Street Trustees Limitedb
20 Churchill Place, London E14 5HJ Custodian
State Street Bank and Trust Companyb
20 Churchill Place, London E14 5HJ Banker
State Street Bank International GmbH
Brienner Straße 59, 0333 Munich, Germany Association of Investment Companies (AIC)
The Company is a member of the AIC, which publishes
monthly statistical information in respect of member companies.
The AIC can be contacted on 020 7282 5555,
enquiries@theaic.co.uk or
visit the website: www.theaic.co.uk Company website
www.mandg.co.uk/creditincomeinvestmenttrust b. Authorised and regulated by the Financial Conduct Authority.
Glossary
Adjusted opening NAV The opening NAV, adjusted for the payment of the last dividend in respect of the previous financial year.
Asset Anything having commercial or exchange value that is owned by a business, institution or individual.
ABS (Asset backed security) A security whose income payments and value are derived from and collateralised by a specified pool of underlying assets.
Asset class Category of assets, such as cash, company shares, fixed income securities and their sub-categories, as well as tangible assets such as real estate.
Association of Investment Companies (AIC) The UK trade body that represents investment managers. It works with investment managers, liaising with government on matters of taxation and regulation, and also aims to help investors understand the industry and the investment options available to them.
Basis points (bps) A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
Bond A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid.
Callable bond A bond that can be redeemed (in other words, called) by the issuer before its maturity date. The price at which the issuer buys back the bond is normally higher than its issue price. A bond is usually called when interest rates fall, so that the issuer can refinance its debt at the new, lower interest rates.
Capital Refers to the financial assets, or resources, that a company has to fund its business operations.
Capitalisation The total market value of all of a company's outstanding shares.
CTA Corporation Tax Act.
Closed-ended A term used to describe an investment company whose capital is fixed and whose shares are not generally redeemable at the option of a holder.
CMBS (Commercial mortgage-backed security) A type of asset-backed security which is collateralised by a commercial real estate asset, either a single property, or - more often - a portfolio of several properties.
Comparative sector A group of investment companies with similar investment objectives and/or types of investment, as classified by bodies such as the AIC or Morningstar. Sector definitions are mostly based on the main assets an investment company should invest in, and may also have a geographic focus. Sectors can be the basis for comparing the different characteristics of similar investment companies, such as their performance or charging structure.
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Consumer Prices Index (CPI) An index used to measure inflation, which is the rate of change in prices for a basket of goods and services. The contents of the basket are meant to be representative of products and services we typically spend our money on.
Convertible bonds Fixed income securities that can be exchanged for predetermined amounts of company shares at certain times during their life.
Corporate bonds Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky.
Credit The borrowing capacity of an individual, company or government. More narrowly, the term is often used as a synonym for fixed income securities issued by companies.
Credit default swaps (CDS) Are a type of derivative, namely financial instruments whose value, and price, are dependent on one or more underlying assets. CDS are insurance-like contracts that allow investors to transfer the risk of a fixed income security defaulting to another investor.
Credit rating An independent assessment of a borrower's ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor's, Fitch and Moody's are the three most prominent credit rating agencies. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.
Credit spread The difference between the yield of a corporate bond, a fixed income security issued by a company, and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment's current market value.
Debt instrument A formal contract that a government, a business or an individual can use to borrow money. Debt instruments outline the detailed conditions of the loan, such as the amount and schedule of payment of interest, the length of time before the principal is paid back, or any guarantees (collateral) that the borrower offers. Any type of debt can be a debt instrument - from bonds and loans to credit cards.
Default When a borrower does not maintain interest payments or repay the amount borrowed when due.
Derivatives Financial instruments whose value, and price, are dependent on one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments. Derivatives may be traded on a regulated exchange or traded over the counter.
Developed economy or market Well-established economies with a high degree of industrialisation, standard of living and security.
Dividend Dividends represent a share in the profits of the company and are paid out to a company's shareholders at set times of the year.
Emerging economy or market Economies in the process of rapid growth and increasing industrialisation. Investments in emerging markets are generally considered to be riskier than those in developed markets.
Episode A phase during which investors allow their emotions to affect their decision making, which can cause financial markets to move irrationally.
Equities Shares of ownership in a company.
Ex-dividend, ex-distribution or XD date The date on which declared distributions or dividends officially belong to underlying investors.
Exposure The proportion of an investment company invested in a particular share/fixed income security, sector/ region, usually expressed as a percentage of the overall portfolio.
Fixed income security A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid.
Floating rate notes (FRNs) Securities whose interest (income) payments are periodically adjusted depending on the change in a reference interest rate.
Gearing Is a measure of financial leverage that demonstrates the degree to which the Investment Trust's operations are funded by equity capital versus creditor financing.
Gilts Fixed income securities issued by the UK Government.
Government bonds Fixed income securities issued by governments, that normally pay a fixed rate of interest over a given time period, at the end of which the initial investment is repaid.
Hard currency (bonds) Refers to bonds denominated in a highly traded, relatively stable international currency, rather than in the bond issuer's local currency. Bonds issued in a more stable hard currency, such as the US dollar, can be more attractive to investors where there are concerns that the local currency could lose value over time, eroding the value of bonds and their income.
Hedging A method of reducing unnecessary or unintended risk.
High yield bonds Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered to be at higher risk of default than better quality, i.e. higher rated fixed income securities but have the potential for higher rewards. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of security's life.
Index An index represents a particular market or a portion of it, serving as a performance indicator for that market.
Index-linked bonds Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as inflation-linked bonds.
Inflation The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.
Investment grade bonds Fixed income securities issued by a company with a medium or high credit rating from a recognised credit rating agency. They are considered to be at lower risk from default than those issued by companies with lower credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.
Investment trust An investment trust is a form of collective investment fund found mostly in the United Kingdom.
Investment trusts are closed-end funds and are constituted as public limited companies.
IRR Internal Rate of Return.
IPO Initial Public Offering. The process of offering shares of a private corporation to the public.
Issuer An entity that sells securities, such as fixed income securities and company shares.
Leverage When referring to a company, leverage is the level of a company's debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to an investment company that borrows money or uses derivatives to magnify an investment position.
LIBOR The three-month GBP London Interbank Borrowing Rate is the rate at which banks borrow money from each other (in UK pounds) for a three-month period.
Liquidity A company is considered highly liquid if it has plenty of cash at its disposal. A company's shares are considered highly liquid if they can be easily bought or sold since large amounts are regularly traded.
Local currency (bonds) Refers to bonds denominated in the currency of the issuer's country, rather than in a highly traded international currency, such as the US dollar. The value of local currency bonds tends to fluctuate more than bonds issued in a hard currency, as these currencies tend to be less stable.
Long position Refers to ownership of a security held in the expectation that the security will rise in value.
Macroeconomic Refers to the performance and behaviour of an economy at the regional or national level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance.
Sometimes abbreviated to 'macro'.
Maturity The length of time until the initial investment amount of a fixed income security is due to be repaid to the holder of the security.
Mezzanine tranche A generally small layer of corporate debt positioned between the senior tranche (mostly AAA) and a junior tranche (unrated, typically called equity tranche).
Modified duration A measure of the sensitivity of a fixed income security, also called a bond, or bond fund to changes in interest rates. The higher a bond or bond fund's modified duration, the more sensitive it is to interest rate movements.
Monetary policy A central bank's regulation of money in circulation and interest rates.
Morningstar A provider of independent investment research, including performance statistics and independent investment company ratings.
Near cash Deposits or investments with similar characteristics to cash.
Net asset value (NAV) An investment company's NAV is calculated by taking the current value of its assets and subtracting its liabilities.
NAV total return A measure showing how the net asset value (NAV) per share has performed over a period of time, taking into account both capital returns and dividends paid to shareholders.
NAV total return is expressed as a percentage change from the start of the period. It assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend.
NAV total return shows performance which is not affected by movements in share price discounts and premiums. It also takes into account the fact that different investment companies pay out different levels of dividends.
Non-executive Director (NED) A non-executive Director is a member of a company's board of directors who is not part of the executive team. A non-executive Director typically does not engage in the day-to-day management of the organisation, but is involved in policy making and planning exercises.
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Official List The Official List (or UKLA Official List) is the list maintained by the Financial Conduct Authority in accordance with Section 74(1) of the Financial Services and Markets Act 2000 (the Act) for the purposes of Part VI of the Act.
Ongoing charges figure The ongoing charges figure includes charges for management of the fund; administration services; and services provided by external parties, which include depository, custody and audit, as well as incorporating the ongoing charges figure from funds held in the portfolio (taking into account any rebates). The ongoing charges figure (as a percentage of shareholders' funds) is an annualised rate calculated using average net assets over the period in accordance with the Association of Investment Companies' (AIC) recommended methodology.
Options Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a given date in the future.
Ordinary Share Ordinary Share is the only class of shares issued and benefits from all the income and capital growth in the portfolio.
Overweight If an investment company is 'overweight' in a stock, it holds a larger proportion of that stock than the comparable index or sector.
Payment date The date on which dividends will be paid by the investment company to investors.
Private debt instruments These instruments not traded on a stock exchange and typically issued to small groups of institutional investors.
Public debt instruments These instruments refers to assets that are listed on a recognised exchange.
REIT (real estate investment trust) A REIT is a company that owns, operates or finances income-producing real estate.
Retail Prices Index (RPI) A UK inflation index that measures the rate of change of prices for a basket of goods and services in the UK, including mortgage payments and council tax
Revolving credit facility A line of credit (essentially a loan agreement) is established between a bank and a business from which the business can draw funds at any time as needed. The bank sets a ceiling for the loan.
RMBS (Residential mortgage-backed security) A type of asset-backed security which is collateralised by a portfolio of residential properties.
Securitise/securitisation The creation and issuance of tradeable securities, such as bonds, that are backed by the income generated by an illiquid asset or group of assets. By pooling a collection of illiquid assets, such as mortgages, securities backed by the mortgages' income payments can be packaged and sold to a wider range of investors.
Senior tranche The highest tranche of a debt security, i.e. the one deemed least risky. Any losses on the value of the security are only experienced in the senior tranche once all other tranches have lost all their value. For this relative safety, the senior tranche pays the lowest rate of interest.
Share price total return Total return to shareholders, assuming all dividends received were reinvested at the
mid-market price without transaction costs into the shares of the company at the time the shares were quoted ex-dividend.
Short position A way for an Investment Manager to express his or her view that the market might fall in value.
Short dated corporate bonds Fixed income securities issued by companies and repaid over relatively short periods.
Short dated government bonds Fixed income securities issued by governments and repaid over relatively short periods.
SMEs (Small and medium-sized enterprise) A business defined in the United Kingdom by reference to staff headcount (less than 250 employees) and annual turnover (less than GBP25 million).
SONIA (Sterling overnight index average) SONIA is an interest rate index administered by the Bank of England and based on actual transactions. It reflects the average interest rate that banks pay to borrow sterling overnight from other banks and institutional investors.
Spread duration A measure of the portfolio's sensitivity to changes in credit spreads.
Sub-investment grade bonds Fixed income securities issued by a company with a low rating from a recognised credit rating agency. They are considered to be at higher risk from default than those issued by companies with higher credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.
Swap A swap is a derivative contract where two parties agree to exchange separate streams of cash flows. A common type of swap is an interest rate swap to hedge against interest rate risk.
Synthetic inflation-linked bonds Refers to securities created using a combination of assets to simulate the characteristics of inflation-linked bonds. By buying inflation-linked government bonds and selling protection against companies defaulting on their debts, using credit default swaps, the combined synthetic investment will behave similarly to a physical inflation-linked bond, had one been issued. Synthetic inflation-linked bonds are usually created where a company does not have any inflation-linked bonds in issue.
Tap issuance programme A method of share issuance whereby the company issues shares over a period of time, rather than in one sale. A tap issue allows the company to make its shares available to investors when market conditions are most favourable.
Total return The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest or dividend payments) and capital gains.
Treasury shares Shares that the company bought back from the marketplace and it keeps in its treasury; they do not count for the distribution of dividends or the calculation of earnings per share or net asset value per share. Also known as treasury stock.
Valuation The worth of an asset or company based on its current price.
Volatility The degree to which a given security, investment company, fund, or index rapidly changes. It is calculated as the degree of deviation from the norm for that type of investment over a given time period. The higher the volatility, the riskier the security tends to be.
Weighted average life (WAL) The asset-weighted average number of years to final maturity of the portfolio, based on the final maturity for all assets/exposures.
Yield This refers to either the interest received from a fixed income security or to the dividends received from a share. It is usually expressed as a percentage based on the investment's costs, its current market value or its face value. Dividends represent a share in the profits of a company and are paid out to the company's shareholders at set times of the year.
Yield to maturity The total return anticipated on the portfolio if the underlying bonds are held until maturity.
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ISIN: GB00BFYYL325, GB00BFYYT831 Category Code: ACS TIDM: MGCI LEI Code: 549300E9W63X1E5A3N24 OAM Categories: 1.1. Annual financial and audit reports Sequence No.: 151097 EQS News ID: 1310271 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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