Over the recommended holding period of 10 years, the Sub-Fund aims to achieve an average net annual financial return of between 9% and 12% per year (after deduction of costs). The strategy is focused on generating absolute returns, independent of market cycles, and not on tracking traditional benchmarks. No capital guarantee is provided.
In addition to the general risks described in Chapter 3 of the (general) prospectus and the matters set out above under “Return & Risk,” this Sub-Fund is subject to the following specific risks. The list below is non-exhaustive: other risks not named here may also arise and affect the value of an investment in the Sub-Fund.
All risks must be weighed integrally and in a balanced manner when purchasing Participations; it is not possible to designate any one of these risks as significantly more material than the others; they influence one another and, in combination, may negatively affect the value of the investments to a considerable degree.
The Sub-Fund is illiquid. The Sub-Fund invests predominantly in non-listed funds and companies. These private equity-related investments are generally illiquid in nature and not exchange-listed. Such investments typically have no active secondary market. Private equity investments are also frequently entered into for a fixed term. All of this often means that the investments are difficult, slow, restricted, subject to additional costs and/or only conditionally saleable in the interim. The underlying funds in which investments are made may further restrict or (temporarily) entirely exclude the liquidity of their participation rights. Furthermore, only a limited number of parties are often willing or authorised to purchase interests in the underlying funds (secondaries) via a secondary sales market, which is generally limited or entirely absent. This makes it more difficult for the Sub-Fund — and thus for its participants — to realise investments in the short term or at market-conform prices, and they are therefore illiquid. Early exit may moreover be accompanied by additional costs and/or on unfavourable terms.
In practice, there is a limited number of potential buyers for private equity-related interests, meaning that a desired or forced sale may involve long waiting times and unfavourable prices. A mismatch may also arise between the liquidity needs of exiting participants on the one hand and the limited availability of liquid resources on the other. This may lead to suspension of distributions, a discount on exit values and/or forced sale of assets on unfavourable terms.
To mitigate this risk, the Sub-Fund applies various measures, such as an initial lock-up period of three (3) years, quarterly exit opportunities, and the authority of the Manager to temporarily suspend redemption requests. For this reason, the Sub-Fund is not suitable for investors pursuing an investment horizon shorter than ten (10) years.
Returns are highly dependent on the performance of the underlying private equity funds selected by the Sub-Fund and their strategies. The Sub-Fund limits this risk by applying diversification across multiple funds, sectors and geographies. It carries out periodic monitoring of the underlying positions and applies reallocation where possible and necessary. As a result, investments in private markets are only suitable for investors willing to commit capital for the long term, as also evidenced by the lock-up period of three (3) years and recommended investment horizon of 10 years as further described.
Participating in the Sub-Fund means investing in a portfolio consisting of carefully selected funds and companies within the framework of purposeful capital, generally without an exchange listing and with a long-term vision. This structure brings opportunities, but also specific risks which — alongside the general investment risks — are named here.
The nature of the investments means that the Sub-Fund is aimed at investors with an investment horizon of at least ten (10) years. During this period, the deployed capital cannot, or can only to a limited extent, be relocated, reinvested or redeemed. Reallocation within the portfolio — for example in response to changed market conditions or strategic considerations — cannot be executed in the short term. Participants must therefore have sufficient additional liquidity outside their participation in the Sub-Fund to meet ongoing obligations or personal expenses.
The underlying funds generally invest in private companies active in growing sectors or niches. These companies may be vulnerable to risks such as inexperienced or fluctuating management, lack of scale or structure, changing regulation, competitive pressure, deficient transparency and a limited track record. Despite careful selection by the Sub-Fund, this may result in loss of value as a consequence of failing execution, market failure or unexpected external factors.
Because the assets in which the Sub-Fund invests are not (regularly) tradable on public markets, valuations are frequently determined on the basis of internal models, comparable transactions or estimates by fund managers. This brings risks such as inaccuracy, subjectivity or fluctuation. The determined Net Asset Value (NAV) per participation may therefore differ from the price that would be realisable upon actual sale of the assets. Although valuations are tested periodically and independently, valuation uncertainty remains inherent to investments in private equity.
The Sub-Fund invests exclusively via underlying funds managed by external fund managers. In doing so, the Sub-Fund generally does not acquire majority interests. As a result, the Sub-Fund — and thereby the Participants — has no or only limited control over investment choices, the timing of investments or exits, or the manner in which enterprise value is realised.
Private equity investments frequently exhibit a so-called J-curve: in the first years of the fund’s life-cycle, costs are incurred and investments are built up, as a result of which the net asset value may initially decline. Returns generally arise only later in the life-cycle, upon successful exits or liquidations of the underlying companies. Delays in, or the failure to achieve, such exits — for example due to macro-economic conditions, geopolitical tensions or disappointing growth development — may have a substantial negative impact on the return of the Sub-Fund. Investors must take into account that this pattern is structural for private equity investments.
The Sub-Fund applies no structural leverage financing. External financing may be drawn temporarily, up to a maximum of 25% of the Net Asset Value (NAV), solely to bridge short-term differences between incoming and outgoing cash flows. This bridging financing is of limited duration and serves solely a liquidity purpose, meaning it does not materially alter the long-term risk profile of the fund.
The underlying funds may, however, make use of debt and leverage financing to enhance returns. This may cause losses to be magnified in the event of disappointing performance or limited access to financing. Participants are thereby indirectly exposed to the consequences of leverage, such as increased volatility and loss of value.
In fund selection, the Sub-Fund explicitly assesses the leverage policy, the transparency regarding it, and the associated risk management. Funds with excessive or insufficiently substantiated leverage structures are excluded. This assessment provides no guarantee of risk mitigation, but forms part of the broader risk management framework of the Sub-Fund as described in this Prospectus.
Holding cash reserves is necessary
for liquidity management. The Sub-Fund continuously holds liquid resources to cover future exit requests, outstanding obligations towards underlying funds (capital calls) and to retain flexibility for new investment opportunities. During periods in which these resources are not yet invested, little to no return is realised on this portion. This may cause the net return across the total portfolio to be temporarily lower.
Although exit is in principle possible on a quarterly basis, structures are built in that discourage early outflow. An initial lock-up period of three (3) years applies, declining exit costs are charged the longer the holding period, and upon exit within ten (10) years a market-conform discount on the NAV is applied. Moreover, the volume of redemption requests to be executed per quarter is capped. In exceptional market conditions, the Sub-Fund may postpone or refuse redemption requests in whole or in part.
By sustainability risk, the Sub-Fund means an event or circumstance with a potential material negative effect on environmental, social or governance factors which, if it occurs, may have a material negative effect on the value of an investment. These risks are taken into account during due diligence at the level of the underlying funds (see Annex V), but can never be entirely excluded. For a detailed explanation of the Sub-Fund’s sustainability policy and the mandatory SFDR information, reference is made to the section Sustainability Policy (SFDR) and to Annex V of this Prospectus.
The Sub-Fund invests globally via funds denominated in currencies other than the euro, such as the US dollar (USD), the British pound (GBP) or emerging-market currencies. Exchange-rate fluctuations relative to the Euro may therefore have a positive or negative influence on the return. Currency risks are in principle not structurally hedged, but in individual cases the fund may choose to hedge the currency risk (in part). As a result, the fund may ultimately have to pay a higher or lower euro amount than initially expected, depending on the currency exchange-rate development between commitment and payment.
The Sub-Fund may occasionally use currency forward contracts to hedge currency risks.
Changes in macro-economic conditions, interest-rate and inflation expectations or sector-specific shocks may negatively affect the valuation of underlying funds. Because the underlying investments are of limited tradability, the Sub-Fund cannot neutralise market fluctuations.
For the execution of transactions and the safekeeping of assets, the Sub-Fund is dependent on external service providers (managers of the funds, depositary, administrator and other counterparties). Bankruptcy, default or operational errors on the part of these parties may lead to financial losses or delay in distributions. The Sub-Fund monitors these parties by means of due diligence investigation and periodic controls, but cannot entirely exclude these risks.
The risk that the strategies misjudge the situation and/or that disruptions occur in execution. This is mitigated as far as possible by periodically evaluating the models and regularly monitoring the execution of the models.
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