The Schiehallion Fund Limited
Legal Entity Identifier:
213800NQOLJA1JCWXQ56
Regulated Information Classification: Annual
Financial and Audit Reports
Annual Report and
Financial Statements
Further to the preliminary statement
of audited annual results announced to the Stock Exchange on 4
April 2024, The Schiehallion Fund Limited ("Schiehallion" or "the
Company") announces that the Company's Annual Report and Financial
Statements for the year ended 31 January 2024, including the Notice
of Annual General Meeting, has today been posted to shareholders
and submitted electronically to the National Storage Mechanism
where it will shortly be available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism.
It is also available on the Schiehallion page of the
Baillie Gifford website at: schiehallionfund.com (as is
the preliminary statement of audited annual results announced by
the Company on 4 April 2024).
Proposed Amendment to
Articles of Incorporation
A special resolution is being
proposed at the AGM, Resolution 13, which seeks shareholder approval for the
adoption of new Articles of
Incorporation (the 'New Articles'). The proposed amendments being
introduced in the New Articles relate to (i) clarifying the
Company's general authority to acquire its own shares and (ii)
increasing the cap on the aggregate fees paid to Directors from
£360,000 per annum to £430,000 per annum.
A copy of the existing Articles and
the proposed amended Articles are available on the Company page of
the Baillie Gifford website at:
Schiehallion Fund | Baillie Gifford | Institutional Investors |
Baillie Gifford
The Company's Annual General Meeting
(AGM) is being convened at 3pm on Friday, 10 May, at the offices of
at the offices Herbert Smith Freehills, Exchange House, Primrose
Street, London EC2A 2EG.
The Board encourages all
shareholders to submit proxy voting forms, appointing the
chairperson of the AGM, as soon as possible and, in any event, by
no later than 3pm on 8 May 2024.
We would encourage shareholders to
monitor the Company's website at schiehallionfund.com. Should
shareholders have questions for the Board or the Investment Manager
or any queries as to how to vote, they are welcome as always to
submit them by email to adgg-aafa-f@alterdomus.com or call Alter
Domus (Guernsey) Limited on +44 (0) 1481 742 250.
Alter Domus (Guernsey) Limited may
record your call.
If you or, if appointed, your proxy
wish to attend the Annual General Meeting electronically you, or
your proxy, will have the same right to attend, be counted in the
quorum, participate in the business of the Annual General Meeting,
speak and vote as if you, or your proxy, had attended the meeting
in person. Details of how to attend the Annual General Meeting
electronically can be obtained from Alter Domus (Guernsey) Limited
on the contact details provided above.
Responsibility Statement of the Schiehallion
Directors in respect of the Annual Report and Financial
Statements
The Schiehallion Fund Limited Directors confirm
that, to the best of their knowledge:
¾ the Financial
Statements set out in the Annual Report and Financial Statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company;
and
¾ the Strategic
Report set out in the Annual Report and Financial Statements
includes a fair review of the development and performance of the
business and the position of the issuer, together with a
description of the principal risks and uncertainties they
face.
The Directors consider the Annual
Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
Principal and Emerging Risks relating to the
Company
As explained on pages 64 and 65 of
the Annual Report and Financial
Statements, there is a process for
identifying, evaluating and managing the risks, including emerging
risks, faced by the Company on a regular basis. The Directors have
carried out a robust assessment of the principal and emerging risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. A
description of these risks and how they are being managed or
mitigated is set out in the table below.
The Board considers the ongoing
coronavirus (Covid-19) pandemic to be a factor which continues to
exacerbate existing risks, and its impact is considered within the
relevant risks.
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What is the risk?
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How
the risk is managed?
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Current assessment of risk
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Investment and Strategic Risk
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Liquidity of Investments
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The Company's investments
are
predominantly in private investee
companies or companies which have recently completed an IPO. Such
investments may not be
liquid or may have restrictions on
sale or transfer of shares. This may limit the Company's ability to
realise investments at short notice or at all.
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By diversification of the portfolio,
in accordance with the Company's investment limits and risk
diversification policies.
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Stable: The Company
has
not seen any significant
impact on underlying
liquidity
of investments, however,
the economic climate, in
a continuation of trends
observed in the previous
year, has continued to
depress IPO activity.
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Market, Economic, Political and
Environmental Risks
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From time to time a large
proportion of the total value
of
the Company's portfolio
could
be concentrated in a
limited
number of investee
companies,
which could be adversely
affected by an unexpected
change in their markets,
by
governmental intervention
or
by a reputational issue.
This
could have a material
impact
on the overall value of
the
Company's portfolio and
consequential adverse
effects
on the Company's share
price.
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The Board assesses this
risk
by considering, at each meeting,
metrics which have contributed to performance as well as discussion
with the portfolio managers on specific conditions which the
underlying investee companies face. This risk is also managed by
the Company's investment diversification policy.
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Increasing: This risk
is
seen as increasing due
to increased volatility
as
a result of the ongoing
Russian invasion of
Ukraine
and conflict in Gaza,
high
energy prices, inflation
and
interest rates, as well as
the
global reach of the increased
political tensions between the US and China.
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What is the risk?
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How
the risk is managed?
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Current assessment of risk
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Investment and Strategic Risk (continued)
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Valuation Risk
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The Company invests in
late
stage private businesses
which
are valued in accordance
with
International Private
Equity
and Venture Capital
Valuation
('IPEV') Guidelines using
appropriate valuation
methods.
Such methods include an
element of judgement
which
may lead to a material
mis-statement of the
valuation
and consequently of the
Company's net asset
value.
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The Investment Manager has
a
robust valuation
methodology,
which is applied consistently. The
Investment Manager's valuation process revalues each of the private
company investments every 3 months and additional valuations are
carried out in response to trigger events to ensure the investments
are carried at fair value. The valuation process is overseen by the
Private Companies Valuations Group at Baillie Gifford which is
independent from the portfolio
managers and which takes advice from
an independent third party (S&P Global). The valuations are
subject to review and challenge by the Board every 6 months and are
subject to scrutiny annually by the external Auditor.
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Stable: This risk is seen
as
stable. In periods of
market
volatility the Private
Company
Valuations Group will
perform
a trigger analyses and,
if appropriate, revalue
the
affected investments,
as described in the
report
on page 28 of the Annual report and
Financial Statements.
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Investment Strategy Risk
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Pursuing an investment
strategy
to fulfil the Company's
objective
which the market perceives
to
be unattractive or
inappropriate,
or ineffective
implementation
of the Company's
investment
strategy, may lead to
reduced
returns for shareholders and,
as
a result, decreased demand
for
the Company's shares. This
may
lead to the Company's
shares
trading at a widening
discount
to their net asset value.
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The Board regularly
reviews
and monitors the
Company's
investment policy and
strategy,
the investment portfolio
and
its performance, the level
of
discount/premium to net
asset
value at which the shares
trade
and movements in the
share
register. A strategy meeting
is
also held annually. In
addition,
the Investment Manager
keeps in close contact
with
key shareholders and
provide
regular feedback to the
Board.
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Increasing: The risk
is
seen as increasing as the
market's appetite for
direct
or indirect investment in
growth stocks is reduced
due
to ongoing macroeconomic
and geopolitical
concerns.
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Discount Risk
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The discount/premium at
which
the Company's shares
trade
relative to its net asset
value
can change. Such an
imbalance
can diminish the
attractiveness
of the Company's shares
to
existing investors and
lead
to a lack of liquidity in
the
Company's share trading.
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The Board monitors the level
of
discount/premium at each Board
meeting. The Company has authorities in place to buy back or issue
shares, when deemed to be in the best interest of the Company and
its shareholders.
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Increasing: Although
the
discount narrowed
following
the announcement that the
Company would buy back
shares, the risk is
considered
to be increasing as
overall
the discount widened
significantly over the
year.
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Climate and governance
risk
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Perceived problems on
environmental, social and
governance ('ESG') matters
in
an investee company could
lead
to that company's shares
being
less attractive to
investors,
adversely affecting its
share
price, in addition to
potential
valuation issues arising
from
any direct impact of the
failure to address the
ESG
weakness on the operations
or
management of the
investee
company (for example in
the
event of an industrial
accident
or spillage). Repeated
failure
by the Investment Manager
to identify ESG
weaknesses
in investee companies
could
lead to the Company's own
shares being less attractive
to
investors, adversely
affecting
its own share price. In
addition,
the valuation of
investments
could be impacted by
climate
change due to
climate-related
operational challenges,
changes
in end demand or failure
to
identify a pathway to Net
Zero.
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This is mitigated by the
Investment Manager's ESG
stewardship and
engagement
policies, which are
integrated
into the investment process,
as
well as the extensive upfront and
ongoing due diligence which the Investment Manager undertakes on
each investee company. This includes the risk inherent in climate
change (see page 66 of the Annual Report and Financial
Statements).
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Stable:
The Investment Manager continue to
employ strong ESG stewardship and
engagement policies.
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External Risks
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Political and Associated
Economic Risk
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Global political changes
result
in policy changes in areas
in
which the Company invests
or may invest may have
practical consequences for
the
Company and impact
financial
performance.
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Political developments
and
other social trends are
closely
monitored by the Board
and
are regularly discussed
at
Board meetings.
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Increasing:
This risk is increasing as
governments
and consumers around the world
continue to assess the impact of the ongoing Russia-Ukraine war,
including
sanctions applied in response,
heightened tensions between the US and China, the conflict in Gaza
and the impact of high inflation and interest rates.
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What is the risk?
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How
the risk is managed?
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Current assessment of risk
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External Risks (continued)
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Legal and Regulatory Risk
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Changes to the regulatory
environment could
negatively
impact the Company. Failure
to
comply with applicable
legal,
regulatory and tax
requirements
could lead to suspension of
the
Company's Stock Exchange
listing, financial penalties,
a
qualified Audit Report or
the
Company being subject to
tax
on capital gains.
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To mitigate this risk,
Baillie
Gifford's Business Risk,
Internal Audit and
Compliance
Departments provide
regular
reports to the Audit
Committee
on Baillie Gifford's
monitoring
programmes. The
Administrator
provides regular
compliance
reports to the Audit
Committee
to confirm the relevant Guernsey
submissions are made to protect the legal and tax status of the
Company. Major regulatory change could impose disproportionate
compliance burdens on the Company. In such circumstances
representation is
made to ensure that the
special
circumstances of
investment
companies are recognised.
Shareholder documents and
announcements, including
the
Company's published
Interim
and Annual Report and Financial
Statements, are subject to stringent review processes and
procedures are in place to ensure adherence to the Transparency
Directive and the Market Abuse Directive with reference to inside
information.
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Stable:
All control procedures working
effectively. There have been no material regulatory changes that
have occurred during the year.
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Operational Risks
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Performance and Reliance on Third
Party Service Providers
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In common with most other
investment companies the
Company has no direct
employees and relies
entirely
for its operations on third
party
service providers. Failure of
the
Investment Manager's
systems
or those of another
service
provider, such as the
Custodian
and Depositary, could lead
to
an inability to accurately
report
or lead to a
misappropriation
of assets.
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The Audit Committee
receives
 six
monthly reports from
the Investment Manager's
Business Risk Department
on
their monitoring
programme
of internal controls. The
Audit
Committee also receives
ISAE
3402 or equivalent reports on the
Investment Manager and other service providers. These reports are
reviewed by Baillie Gifford's Business Risk Department and a
summary of the key points is reported to the Audit Committee and
any concerns are investigated.
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Stable: All control
procedures
are deemed to be working
effectively. Portfolio
management and all
regulatory and
administrative
tasks have continued
uninterrupted during the
year.
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Cyber Security Threats
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Errors, fraud or control
failures
by the Company's key
service
providers or loss of data
through increasing cyber
threats or business
continuity
interruptions could
damage
the Company's reputation
or
investors' interests or
result
in losses.
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The Audit Committee
receives
confirmation that key
service
providers have appropriate cyber/ IT
policies to ensure that controls are in place including business
continuity and disaster recovery arrangements.
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Increasing: This risk
is
seen as increasing due to
recent indications that
the
continuation of
geopolitical
tensions could lead to
more
cyber attacks. Emerging
technologies, including
AI,
could potentially
increase
information security
risks.
In addition, service
providers
operate a hybrid approach
of remote and office
working,
thereby increasing the
potential of a cyber
security
threat.
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Key Professionals
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Loss of key professionals,
particularly in relation to the Investment Manager could impact the
Company's ability to implement its investment strategy.
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The Board reviews the Investment
Manager's performance annually as well as the resources of the
Investment Manager for attracting and retaining talent.
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Stable:
All procedures are
satisfactory.
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Emerging Risks
As explained on pages 39 to 43 of
the Annual Report and Financial Statements the Board has regular
discussions on principal risks and uncertainties, including any
risks which are not an immediate threat but could arise in the
longer term. The Board
considers that the key emerging
risks arise from two areas; the proliferation of AI and the
exposure
of the portfolio to further
geopolitical and macroeconomic headwinds as described
below:
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What is the risk?
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How
the risk is managed?
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Current assessment of risk
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Investment and Strategic Risk (continued)
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Emerging risks
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The ever-increasing
capacity
and wide adoption of AI
tools,
in daily life and
businesses
globally. The proliferation of
this
technology increases the
risk
of both its malicious use
such
as cyberattacks and fraud
as
well as unintentional
negative
effects given the novel
nature
of these tools. There are
also
considerations regarding
the
societal effects of AI as
it
develops and becomes
adopted
more broadly.
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The Investment Manager
has
established a group to
monitor
the risks associated with emerging
technologies such as AI. The Audit Committee receives confirmation
that key service providers have
appropriate cyber/IT policies
to
ensure that controls are in
place
including business continuity and
disaster recovery arrangements.
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Increasing. This risk is
seen
as increasing due to the
rapid
adoption and development
of AI tools.
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The global reach of the
investment portfolio and
its
exposure to external and
emerging threats such as
an
escalation of the
Russia-Ukraine
war, broadening conflict in
the
Middle East and
heightened
cyber risk. An escalation
in
tensions between the US
and
China may lead to
sanctions
being imposed on China
with
the potential for
adversely
affecting the Company's
Chinese investments.
Higher
inflation, interest rates
and
energy costs could add
pressure to the companies
in
the investment portfolio.
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The risks are mitigated by
the
Investment Manager's close links to
the investee companies and their ability to ask questions on
contingency plans. The Investment Manager believes the impact of
such events may be to slow growth rather than to invalidate the
investment rationale.
The Investment Manager monitors the
risks emerging in certain geographies and have established a group
to manage the response to any future events that might result in
heightened levels of market volatility. Regular exercises are
carried out to test the Investment Manager's response to various
scenarios.
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 Increasing.
This risk is
seen as increasing due
to escalating
geopolitical
tensions globally.
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Baillie Gifford & Co
Limited
08 April 2024