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? |
How the risk is managed? |
Current assessment of risk |
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Investment and Strategic Risk |
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Liquidity of Investments |
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. |
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 |
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. |
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? |
How the risk is managed? |
Current assessment of risk |
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Investment and Strategic Risk (continued) |
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Valuation Risk |
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. |
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 |
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. |
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 |
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. |
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 |
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. |
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 |
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. |
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? |
How the risk is managed? |
Current assessment of risk |
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External Risks (continued) |
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Legal and Regulatory Risk |
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. |
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 |
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. |
The Audit Committee receives
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 |
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. |
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 |
Loss of key professionals, particularly in relation to the Investment Manager could impact the Company's ability to implement its investment strategy. |
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. |
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? |
How the risk is managed? |
Current assessment of risk |
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Investment and Strategic Risk (continued) |
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Emerging risks |
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. |
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. |
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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seen as increasing due to escalating geopolitical tensions globally. |
Baillie Gifford & Co Limited
08 April 2024
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