I am a 61-year-old with a pension pot, considering how my money can work as hard as I have done these past 40 years. Having started my working life in 1983, I have a reasonable hope that my money may be invested for my benefit till 2063, by which time I will be 100. The 100-year life is not an abstract notion, it is a target for me, for my health and for my wealth.

This post asks some of the questions I ask about investing in private markets and a lot of questions I don’t have the competence to ask – but form a part of other people’s due diligence. It’s a tough one to read and hard for me to edit – I’ve left it as I was sent it.

 Edi Truell runs Disruptive Capital and has shared with me, a discussion he has been having with potential investors in his solution for pension funds and long term savers –Long Term Assets Ltd.

What follows has been provided me by Edi and was created by the team at Disruptive Capital GP. It is of course a financial promotion and those reading this blog will have access to purchasing shares using the London Stock Exchange

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Designed by long term investors, for long term investors

• Tailored London listed private markets solution for pension funds and long-term savers, designed by private market and pension industry experts
• Attractive annual dividend yield, inflation protection, ultra-long-term outlook
• Diverse private assets initial portfolio with niche ‘future proofed’ assets, Positive Impact, low debt and strong growth potential
• Strong alignment of interest between shareholders and manager
• Privileged access to proprietary deal flow via exclusivity with Disruptive Capital (Investment Manager) and Sub-Managers’ networks
• High allocation to secondary and direct investments, and use of C Shares and Quoted Investments to minimise cash drag

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World-class management & governance

• Disruptive Capital with extensive track record over 30 years, demonstrating:
  1. exceptional above-market returns across private markets;
  2. low loss ratios, even in bad markets;
  3. strong risk management;
  4. highly contrarian investment style
• Valuable expertise of Board and Strategic Advisory Committee, comprising veterans in pensions & private markets
• Long-term investor access to low-cost, easy investment into private markets, run to the highest standards of governance:
• Gold-standard governance and transparency rules of the London Stock Exchange
  1. Oversight of an independent board with highly experienced private market investors
  2. Independent AIFM
  3. Grant Thornton audit, EY valuation review and MJ Hudson / PERACS track record review
• Positive Impact philosophy reinforced by charity holding 17% of Long Term Assets
• First right of refusal on all private market transactions generated by Disruptive Capital

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Listing & liquidity improvements

• London Stock Exchange listing to help shareholders, current and prospective, with their liquidity and Level 1 eligibility needs
  • Whilst being invested in real return-generating assets
• Negotiations underway to bring in steady stream of fresh cash and private market assets from pension funds and asset owners
• Exchange Offers to bring in illiquid assets
  • at appraised NAV
  • to give holders Level 1 liquidity via listed Ordinary shares
• Listed C share ‘side pocket’ for ineligible/”difficult to value” assets
  • to give Level 1 treatment whilst they are being realised and
  • then transferred into the main fund at realised value

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Discount management

• Intention for systematic market purchases, to the benefit of the new investor, where shares are trading at a discount post listing
• Share buybacks
• Share tenders at 99% of NAV, from fresh cash, realisations and use of liquidity lines
• Highly competitive management fees, with clawback provisions against ‘fees on fees’ avoids the ‘present value of excessive fees’ discount

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Questions:

Are interests of shareholders and manager aligned? 

Truell Conservation Foundation charity and Truell family interests

• own over 75% of the shares at Listing
• own the Investment Manager
• have injected a slice of every private market investment they hold
• hold further shares in the portfolio companies
• also control Pension SuperFund Capital which should be source of future investment into Long Term Assets
• exclusivity over future deals

With a low fee base, management fees are a fraction of the expected income. Shareholders want to make long term returns from the shares, not management fees

Performance fees are subject to an hurdle rate of return of typically 8% p.a.; andare largely payable in Long Term Assets Ordinary shares, not cash.

These structures align the interests of the Investment Manager and shareholders as well as avoiding cash strain.

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Asset Performance – can you provide some detailed colour on the performance of the Disruptive investments over the years?

The detailed analysis of the Disruptive Capital portfolio performance is provided in this presentation

In summary, Disruptive has shown

• 1. exceptional above-market returns across private markets, making:

1. 29% net IRR in private equity over 30 years . High ‘alpha’ of +22% above private equity market
2. No losses in cash management over 10 years, whilst generating ±0.30% over LIBOR strong risk management;

• ex ante high risk investments managed to exceptional outcomes
• prudent use of leverage
• low loss ratios, even in ‘down markets’: lossmaking percentage of deals is only 7.3%;
• 92.3% of investments were profitable in ‘down markets’

Niche investment

Virtually zero correlation to private equity peers

Highly contrarian investment style

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Would it not be cleaner to just raise capital in a blind pool to buy LP interests? 

Disruptive has raised billions over the years in private market funds.  However, the key feedback we have had from government, industry groups, pension funds and their advisers, is that they want to see a listed vehicle that gives:

• access for all long term savers to private assets, including DC and personal savers

• provides a “readily realisable and transferable” asset

• gives better value for ’sellers’ than the secondary market, especially when they do not want to sell, but want to have a liquid asset with the option to sell/transfer

• gives the prospect of income and long-term capital growth

TPR has set out for us in its guidance and subsequent communications its conditions precedent for investment in – and inheritance of – private assets.  This has been reinforced by the DWP, FCA and Treasury.  The key requirements are:

• Readily realisable and transferable
• Valuation transparency, reinforced by regular valuation reporting
• Independent governance and audit on the management of the portfolio of private assets
• Private assets must be sold or transferred to a listed vehicle within one year of take on

These objectives can be achieved by readily tradeable listed shares with the further advantages of:

• Being easier to transfer as part of a buyout or consolidator transfer
• Better capital treatment from the insurance and pension regulators (including the PPF in respect of levy calculation) as a ‘Level 1’ asset, vs ‘Level 3’ for unlisted private assets
• Avoiding being a forced seller

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Why would GPs agree for interests of their funds to be sold to a publicly listed vehicle that isn’t providing primary capital and is publicly listed? 

• Expectation of raising very substantial primary capital funds, as well as secondary exchange offers
• Management has 30 years in the market, both as a GP and as a large LP (for example at London Pension Fund Authority or at Pension Insurance Corporation).
• GPs tested to date are attracted to the model and to be seen to help their pension fund customers knowing we can commit primary capital to their next fund; or agree a segregated mandate / co-investment arrangement.
• Unlike most LPs, we have deep and successful experience of private markets. We can contribute to their deal flow, to their investment appraisal and even strategic portfolio company development. As an LP, we corner-stoned Schroder Adveq’s first private equity co-invest programme, doing 17 deals. We corner-stoned Permira Debt Managers first, second and third funds, drawing on our prior experience running Europe’s largest leveraged loan non-bank funds. We corner-stoned CatCo from inception, drawing on our insurance market experience. Other examples are available upon request.

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GPs tend not to want to deal with publicly traded LPs because of disclosure requirements. 

We have found that good GPs are happy for their overall fund performance to be reported publicly.

Where LTA has to be careful is the reporting of underlying portfolio valuations, especially where such portfolio companies are being prepared for sale.  It would be to the disadvantage to such as process.

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How are you managing liquidity for capital calls, redemptions, fees.  What stress testing have you done? 

We do expect to raise very substantial primary capital funds, as well as secondary exchange offers.

As well as primary capital, we have lined up substantial backstop capital lines, of up to 25% LTV.  Of course, we expect the underlying portfolio to produce a good yield; and PE realisations.

We will not take on unfunded capital calls unless we have the capital to hand, whether from the ‘seller’ or elsewhere (or preferably both).

Redemptions are ultimately discretionary if there is insufficient cash to hand.

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How have you determined the value of the investments already in the fund?

The value of the initial investments has been independently produced and verified at several layers by Herbert Smith Freehills and Swiss counsel; as well as being audited by Grant Thornton and EY have just completed a further independent review of the 30^th Sept 2022 valuations

The valuations are first based on the Disruptive Capital estimated fair market values of the Company’s investments.

To provide the Company greater comfort around the internal valuation of the Investment Manager in relation to the investments in the Expected Portfolio, and in order to mitigate the conflict of interest, the Company instructed an independent firm of accountants, Grant Thornton, first to perform agreed-upon procedures on the Investment Manager’s valuations of the investments in the Portfolio, and to report its findings to the independent Directors for their consideration. These valuations were then incorporated into the 31/3/22 audit.

The unaudited interim valuation as at 30/9/22 was reviewed by Grant Thornton.  However, as they are the auditors, they cannot perform an independent valuation.  This has been undertaken by EY.  The results of their findings confirm the reasonableness of the 30^th Sept 22 values.  Further refinements to the valuation methodology will be incorporated in to the 31/12/22 valuation and reporting.

The Portfolio comprises Direct Investments in unquoted, hard-to-value assets as well as investments in Fund Investments themselves holding unquoted assets. This exposure to unquoted assets will exacerbate the risk of variation between the Company’s estimated valuations and the realisable values of its investments. Accordingly, the Net Asset Value figures issued by the Company should be regarded as indicative only and investors should be aware that the realisable Net Asset Value per Share may be materially different from those figures.

The value of the Fund Investments will normally be based on the values provided by the Relevant Manager or administrator of such Fund Investments. The Relevant Manager or administrator (as the case may be) may face the same challenges in relation to valuing the underlying investments of the Fund Investment as the Company does in relation to Direct Investments (as set out above). The Investment Manager or a Sub-Manager (as applicable) may, at their discretion, query the valuation provided by the Relevant Manager or administrator of the Fund Investment and recommend an adjusted valuation where it does not believe that the valuation provided represents fair value.

There is no single standard for determining the ‘fair value’ of an asset and, in many cases, fair value is best expressed as a range of fair values from which a single estimate may be derived. The types of factors that may be considered when applying fair value pricing to an asset include: the historical and projected financial data for that asset; valuations given to comparable assets; the size and scope of the asset’s operations; the strengths and weaknesses of the asset relative to the market in which it operates; applicable restrictions or hindrances on the transfer or other disposal of the asset; industry information and assumptions; general economic and market conditions; and the nature and realisable value of any collateral or credit support.

Valuations of investments for which market quotations are not readily available are inherently uncertain, may fluctuate over short periods of time and are based on estimates. Determinations of fair value of investments may therefore differ materially from the values that would have resulted if a ready market had existed for those investments. Even if market quotations are available for the Company’s investments, such quotations may not reflect the value that the Company or a Fund Investment would be able to realise in respect of those investments because of various factors, including illiquidity, future market price volatility, or the potential for a future loss in market value due to poor industry conditions or the market’s view of the overall performance of an asset.

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There is mention of co-investors agreeing to valuations for 80% of the assets. Who are those co-investors and what fee arrangements do they have in this fund? 

The co-investors are strategic investors investing in the underlying assets.

Examples include:

RTE (the French national grid operator) taking a stake in Atlantic SuperConnection.  ASC are working in partnership with RTE, Europe’s largest transmission network and a global leader in interconnector engineering & management, who already have a portfolio of six interconnector cables. Atlantic SuperConnection is developing an undersea interconnector cable to transmit up to 1.8GW of geothermal and hydroelectric electricity from Iceland to the United Kingdom, and is expected to commission by 2029.  ASC will provide the UK with reliable, green, baseload power at a fraction of the cost of nuclear, and without the intermittency of solar and wind. Interconnectors already account for 7% of Britain’s energy supply, and are recognised by the UK government as a key component of the country’s energy transition.

A €26bn market cap specialist producer of equipment for the life sciences sector, has just taken a 22% stake in Virocell.  Virocell operates out of Great Ormond Street Hospital and Royal Free Hospital, in the design and manufacture of viral vectors – the delivery mechanisms for a wide rnage of vaccines (incl Covid) and cell and gene therapies.

These co-investors have no economics in the Long Term Assets vehicle.

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What’s the expected total expense ratio including at the underlying fund level once this is all up and running? 

The management fees and ancillary costs would expect to give a running rate TER at 0.58% at scale.

Performance fees are first of all subject to an 8% p.a. hurdle; and secondarily are largely paid in shares, not cash. This aligns interest as well as avoiding cash strain.

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If the secondary market returns to a status of trading around par, how does LTA compete for LP interests?

Long Term Assets is primarily a vehicle for pension savers to deploy cash.  It has been designed for DC as well as DB pensions.

However, it has a secondary role in taking in assets, where it will apply fair value NAV to the offers made to acquired such assets.  it is ultimately up to the seller/transferor to decide to accept the Pension SuperFund Long Term Assets offer – or not.

Moreover, as PSF Capital goes ‘on risk’ with ceding pension funds and sponsors, so we expect to inherit private market investments already in ceding pension funds, as well as potential in specie contributions from sponsors.  We further expect fresh cash will be invested by those pension funds. It further may take in stakes in ceding sponsors as part of a risk transfer premium, which stakes would be injected into Long Term Assets.

Indeed, if the secondary market trades up to levels we regard as too high, then Long Term Assets may be a seller.

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Why are the pension funds wanting to exchange private market assets?

When pension funds approach their end game solutions, insurance buy-out solutions do not accept private assets and hence through investment into LTA they can offer listed shares

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Are you managing liquidity on a day-to-day basis?

LTA is a close ended fund.

We do expect to raise very substantial primary capital funds, as well as secondary exchange offers. Liquidity is in the first instance provided by the London Stock Exchange listing. Scale will bring greater liquidity and with it greater interest in the stock.  With index inclusion and the like, then proxies such as 3i would suggest that the stock will trade at or above NAV.

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Investment Governance – can you please provide some colour on how investment decisions are made (committee structures etc,)?

The Investment Manager shall manage the Assets of the Company in accordance with the Company’s principal investment objective and policies as determined by the Board and approved by shareholders. Where the Investment Manager does not have appropriate in-house expertise it seeks to achieve the investment objective by appointing best in class Sub-Managers or advisers for each specialist market (“Manager Appointees”).  The selection process has been supported by market analytics prepared by MJ Hudson PERACS, and by due diligence performed by the Investment Manager.

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The Strategic Advisory Committee

The Strategic Advisory Committee advises the Investment Manager on the management of the Portfolio. The Investment Manager benefits from the deep experience of the members of this committee, giving access to broader experience and cognitive diversity than the investment management team alone.

The role of the Strategic Advisory Committee with respect to the Manager is one of strategic direction and oversight. The Strategic Advisory Committee will not make discretionary management decisions in respect of the Portfolio. Rather, the Strategic Advisory Committee will consider and provide opinions and recommendations to the Investment Manager’s portfolio management team on the management of the Portfolio, the appointment of Manager Appointees, and the valuation and acceptance of assets as in specie subscriptions for shares.

The Board of the Company may at its discretion nominate one of the Directors to sit on the Strategic Advisory Committee as a representative of the Company.

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The Multi Stage Investment Process

When considering an investment opportunity for the portion of the portfolio managed directly by the Investment Manager, it adopts a multistage investment process summarised as follows:

Stage A

Investments are initially screened for suitability by the Investment Manager at a high-level including factors such as: industry sector, target return, management expertise. This stage will screen out any potential investments that do not meet the Company’s fundamental requirements in respect of, inter alia, return characteristics, allocation targets, and ESG policies.  If these are met then a summary investment case is prepared for presentation to the Strategic Advisory Committee, who will recommend whether the Investment Manager should progress the opportunity to Stage B. Typically such recommendation will be followed by the Investment Manager.

Stage B

Internal ‘deep dive’ due diligence is commenced on the investment, covering the key financial, commercial, ESG, impact and legal aspects of the opportunity. The Investment Manager completes a detailed assessment, and a draft proposal is prepared for the use of third-party advisers should the opportunity be advanced to Stage C.  A full investment memorandum is then submitted to the Strategic Advisory Committee.  If recommended by the Strategic Advisory Committee, the investment will typically move to Stage C.

Stage C

Advisors are engaged by the Investment Manager to complete due diligence on the investment; this may include specialist M&A, ESG, tax, legal and industry / sector consultants as appropriate.  A detailed investment case is prepared including analysis of the performance of the company, its management team, its projections, the market in which it operates, and the investment and exit strategy.  A proposed deal structure is proposed and negotiated with the seller. A recommendation to proceed is presented to the Strategic Advisory Committee, which may recommend that the Investment Manager approves, declines, or seeks changes/clarifications to the proposal.

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Will only funds that are considered Positive Impact can go into the LTA? 

Fresh investment will only be made in accordance with the ESG policies. Inherited assets will also be screened.  Whilst they are unlikely to all be “NetPositive”, the principle will be that they ‘do no harm’.  Where assets are deemed by the Board (ultimately) to be unacceptably harmful, they will not be taken on, even into the C Share ‘side pocket’. This side pocket does give the option of taking in assets that do not fit the criteria, and then can be managed out at the original owner’s valuation risk.

ESG policies are at the centre of each investment stage:

Stage A

Opportunities and mangers/sponsors are screened against LTA’s ESG policies. This is a core filtering hurdle, and non-compliant opportunities and managers are not pursued beyond this point.

Stage B

The management team or sponsor of the opportunity/fund is challenged to defend both their ESG policies credentials and any projected positive impacts. They are required to complete an ESG questionnaire and to provide and verify any impact metrics, projections, and underlying assumptions. This may feed into the establish of relevant ESG KPIs for the particular fund/opportunity in question, e.g. community impact, CO2 emissions prevented, trees planted, affordable houses created.

The findings of this analysis is included in the investment memorandum submitted to the Strategic Advisory Committee.

Stage C

The Investment Manager decides to proceed with the opportunity, moving into documentation. This documentation typically enshrines the aforementioned ESG policies and impact objectives where appropriate, either within the core transaction documentation (e.g. SPA, LPA) or a side letter.

Post-investment, LTA uses its influence (e.g board & advisory committee seats) to ensure fund and business decisions are not only aligned with long-term value creation, but also ESG policies and any impact objectives.

The Investment Manager is putting in place an ESG monitoring and reporting system and is basing this on the “NetPositive” principles described below.

How is Positive Impact defined?

Becoming a Custodian-Investor

The Investment Manager’s ESG policies are fully integrated into its investment process, constituting one of the main tests in its initial investment screening, right through to final investment decision. ESG policy is central to PSF Capital’s approach, as an all-reaching set of values and policies to ensure that fresh investments not only do no harm, but do material and long-lasting societal good by favouring “positive impact” investments. Within a pristine Governance framework, LTA is committed to being “NetPositive” from inception, adhering to the 12 principles devised by the Climate Group, World Wildlife Fund and Forum for the Future.

LTA has the expertise, and aims to have the scale, to make substantial fund & direct investments and so secure influential governance rights: and use these rights to ensure fund and business decisions are not only aligned with long-term value creation, but also our ESG policies. In this way LTA plans to become a “custodian-investor” in direct assets, taking its inspiration from the Canadian pension pools, amongst the world’s most respected and value-additive in the world.

In this way LTA invests in businesses it is proud to own, and aspires for those businesses to be proud to be owned by it.

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Explain the clawback protection against fees on fees?

The Company will offset any fees received from portfolio management, corporate finance fees, etc, by an Investment Sub-Manager against the fees payable to the Investment Sub-Manager under the Investment Management Agreement.

Agreements pre-dating the IMA are excluded from this.

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Is your 12.5% performance fee on top of the 20% that would be in underlying funds? 

Long Term Assets will allocate to Investment Sub-Managers, as well as “inheriting” fund investments from ceding pension schemes. The Performance Fee will be charged once only.

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In the case of inherited funds, fund interests will be acquired at a negotiated secondary price, where the fee drag typically associated with funds in the early years has already been factored into the net asset value at Take On, and where the underlying portfolio of assets is known and assessable.

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What’s the management fee, 50 or 55 bps (both are quoted in the deck) and how much of that goes to the sub advisors?

The Investment Manager/Adviser fee at the vehicle level is 0.05% p.a.

A breakdown of the sub-manager fees is displayed below, generally at the 0.50% level. It is important to note that we have negotiated NAV-based fees and not fees on commitments.

Moreover, the bulk of the ‘fee’ is performance related, calculated on net returns only once performance goes above a hurdle rate of return of typically 8% p.a. achieved IRR.

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OMERS ‘club’

Cost sharing fee, expected to be c 0.2% on NAV

Ardian (Private Equity & Infrastructure)

Inherited investments

Management Fee (“MF”) of 0.25% p.a. on Net Asset Value.

New Primaries

Up to £1bn of Commitments: MF of 0.50% p.a. on Net Asset Value with a floor of £300k p.a.

This fee will reduce by 0.05% p.a. on NAV for every additional £1bn invested, with a floor of 0.25% p.a. on NAV

Carried interest of 10%, paid in cash and calculated every three years, subject to a hurdle rate of 6% net IRR. Below that level the fee is 0.25% to 0.5%

Based on an investment of £1 billion i.e. before the fee reduction is effective, and forecast net return of 15%. This equates to an overall fee of around 1.4%.

New Secondaries

Standard MF and carried interest of the relevant Ardian secondaries funds.

Ardian will not charge any additional fees at Mandate level for commitments made to their own funds, which will charge their standard management fee and carried interest, subject to the applicable size discounts.

New Direct Investments

Co-investments alongside Ardian funds for LPs of those funds are generally not charged management fees nor carried interest.

Co-investments alongside third-party managers or in club arrangements will be charged a MF of 1% p.a. on NAV

Co-investments originated by Ardian will be charged 12.5% carried interest over a hurdle of 7% except for private equity, where the hurdle rate is 8% net IRR.

Based on an investment of £1 billion and forecast net return of 15%, this equates to an overall fee of around 0.88% p.a. for the direct investments’ allocation.

Disruptive Capital (Private Equity & Infrastructure Direct)

           MF of 0.50% per annum on NAV

Carried Interest of 12.5% over a 7% hurdle for infra, and, for private equity, the hurdle will be 8% net IRR.

Based on an investment of £1 billion and a scenario of a gross return of 16.4%. This equates to an overall fee of around 1.4%.

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Let’s go through the discount control noted in the deck. How confident are you that this will not trading at a discount?

Liquidity is in the first instance provided by the London Stock Exchange listing. Scale will bring greater liquidity and with it greater interest in the stock.  With index inclusion and the like, then proxies such as 3i would suggest that the stock will trade at or above NAV.

Within Long Term Assets, there will be a discount control mechanism, underpinned by a semi-annual tender process whereby all Ordinary shareholders will be offered the chance to sell up to 25% of the shares in issue back to the company at 100% of NAV^[1], subject to available liquidity.

This will be underpinned by the relationship with Ardian, one of the world’s biggest secondary private market investors, who could, if necessary, acquire a portfolio of fund assets from LTA to provide cash to LTA to meet redemptions

It will be further underpinned by a leverage facility with one of the biggest long term UK asset managers, who are prepared in principle to provide up to 25% of the gross asset value in cash.

While the exercise of tender offers is at the sole discretion of the Board, after the first year the Investment Manager expects that these will be made at every 6-month interval where the Company has significant cash surplus over and above that required for working capital, debt servicing, dividends, and commitment drawdowns and pipeline investments expected in the next 6 months.

As LTA reaches greater scale and so benefits from significant cash inflows from the placement programme and from portfolio realisations, so the Investment Manager expects the Board to make tender offers at every 6-month period.  Equally, at scale, the level of redemptions could be very large, so we have indicated a cap of £250m.

Failure to get to scale, itself a sub-set of the risks of PSF failing to get to scale, will exacerbate this issue.  Whilst LTA has a discount control mechanism, without a flow of new funds coming in it will eventually self-liquidate.  Without scale, it will not qualify for index inclusion and the liquidity that comes with it.  Nor will it achieve a high level of diversification and so be more vulnerable to individual portfolio movements.

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How will you manage the conflicts with Ardian if asset owner assets are rejected?  Ardian will have visibility on the asset owner, its investments, and the fact the asset owner is keen to sell which could ultimately hurt pricing when it goes to sell in the secondary market.  

Ardian are acutely conscious of conflicts. That is one reason why we like dealing with Ardian, as opposed to some other managers. They are rigorous on compliance and legals.

For example, if there is an asset where they have been asked to bid on it in the secondary market. They would simply not to do it, nor mention why they couldn’t, because otherwise they would then be conflicted.

Ardian have spent over a year and a half on this process; and the number one issue for them is compliance and making sure that their reputation is pristine.

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Liquidity – what is the funds’ liquidity policy?

On receiving any proceeds from the portfolio and the placement programme, funds sufficient to pay LTA’s semi-annual debt interest for the period will be placed in escrow, to be distributed to the lender(s) as and when such costs become payable.

To the extend such proceeds are insufficient for the period’s interest payments, the balance will be made up from LTA’s existing cash reserves.

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Why such a high limit to listed equities especially if IPO’s of PE deals is not included in that cap?  Shouldn’t the management fee and performance fee should be excluded from that part of the portfolio?  I assume the listed element is for liquidity management?

We would charge 0.05% with no sub-management fees.

Whilst the limit is 30%, we should clarify this is excluding listed equity resulting from the IPO of a portfolio company.

The bulk of “inherited” public equities will be held in C shares. A number of pension funds have already approached us to offload their small cap holdings as well as private assets.

We will use quoted infrastructure equities for interim portfolio balance, pending completion on direct infrastructure investments.

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LTA will acquire stakes at ‘appraised NAV’. How will this be determined? Is this the latest NAV reported by the manager or a NAV adjusted by Ardian that might include a discount?

Potential Direct Investments will be valued at ‘fair value’ by the Investment Manager (in conjunction with or based on advice from any Sub-Manager Appointees), using a methodology based on accounting guidelines and the nature, facts and circumstances of the respective investments.

The Investment Manager will in the first instance value Direct Investments in accordance with valuation techniques which are consistent with the BVCA’s International Private Equity and Venture Capital Valuation (“IPEV“) Guidelines, which we ourselves developed 25 years ago.

The valuation techniques set out in the IPEV Guidelines may be categorised as follows:

• market approach, which may involve applying the following valuation techniques: (i) applying multiples of earnings or of revenue; (ii) using industry valuation benchmarks, including as a sense check of values produced using other techniques; and (iii) reviewing any available market prices;
• income approach, which may involve applying the following valuation techniques: (i) discounted cash flows or earnings of underlying business; and (ii) discounted cash flows from an investment; and
• replacement cost approach, which may involve applying the net assets valuation technique.

According to the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents ‘fair value’ as of the transaction date and may be an appropriate starting point for estimating ‘fair value’ at subsequent measurement dates. However, adequate consideration must be given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the Direct Investment.

Real estate assets to be held directly by the Company are independently valued using the RICS guidelines or the equivalent in the jurisdictions where they may be based.

Potential Fund Investments will typically be valued in a similar manner on a ‘sum of the parts’ basis.

The Investment Manager or a Sub-Manager (as applicable) may, at their discretion, query the valuation provided by the Relevant Manager or administrator of the Fund Investment and recommend an adjusted valuation where it does not believe that the valuation provided represents fair value. From time to time, the Investment Manager and/or the Board may appoint an independent valuation agent to determine a value where such an approach is considered appropriate.

If applicable, any publicly traded securities will be valued by reference to their bid price or last traded price, if applicable, on the relevant exchange.

If the Directors consider that it would be inappropriate to use a particular valuation technique, either generally or for a particular investment, the Company may adopt such other valuation techniques as they consider to be reasonable in the circumstances.

Accounts – can you please provide the accounts for the period from incorporation to 31 March 2021 and for the 9-month period ended 31 December 2022, even if unaudited?

This will be provided separately when produced

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Research Team Structure – can you please provide some colour on the team at Disruptive Capital that is responsible for sourcing and managing assets?

The Disruptive Capital executive team responsible for sourcing and managing private market investments comprises:

Edi Truell

Cédriane de Boucaud

Henry Tilbury

Somil Lamba

Luke Webster

Roger le Tissier

Christine Whitehorne

Mark Hooton

Hammad Khan

Daniel Webb

Antony Barker

Jay Kenny

Andrew Stalker

Leshon Pitters

Chris Threadgold

The bios for the senior investment team can be found in the Prospectus.

In addition, the board and advisory board source deals from time to time; as does the Investment Manager’s network and affiliates in Pension SuperFund and the portfolio companies.

The Sub-Manager Appointees, such as Ardian, Gresham and HSBC, will be responsible for sourcing and managing new fund investments in, respectively Private Equity and Infrastructure; Sustainable Resources; and UK senior secured loans.

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FX Risk Tolerances & Hedging Policy – can you please confirm how/if FX risk will be hedged?

We expect to hedge the majority of LTA’s non-sterling exposure via forward contracts.

Subject to portfolio level materiality, non-sterling assets with predictable cash flows e.g. debt, will be hedged to 100% and those assets whose cash flow were less predictable e.g. PE, will be substantively (70-100%) hedged at a level to be reviewed and confirmed by the investment committee.

Initially all FX hedging will be carried out via forward contracts. In due course the Investment Manager may look to put in place a multi-currency revolving credit facility, which could be used for currency hedging purposes and replace forward contracts in some positions; or by local currency debt at the investee company level.

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[1] less transaction costs