Sustainable Finance Disclosure Regulation (2019/2088) (the “Disclosure Regulation”)
VenCap 16 GP (Luxembourg) Limited (“Firm“) makes the following disclosures in accordance with Articles 3(1), 4(1)(b) and 5(1) of the Disclosure Regulation.
The Firm, a private limited company (Société à responsabilité limitée) domiciled in Luxembourg, is the general partner and registered alternative investment manager (“AIFM“) of VenCap 16 Feeder SCSp (“Feeder Fund“), a special limited partnership domiciled in Luxembourg. The Feeder Fund is a feeder fund of a master fund, VenCap 16 LP (“Master Fund“), which is a limited partnership domiciled in Jersey that is managed by VenCap (Channel Islands) Limited, a separate AIFM domiciled in Jersey (“Master AIFM“).
In light of the investment strategy and policy of the Master Fund set out in the relevant fund documents, the Firm has decided to invest substantially all of the Feeder Fund’s assets in the Master Fund. Therefore, the Firm does not make investment decisions on an ongoing basis, investment decisions being made at Master Fund’s level. However, substantively, the sustainability risk to which investors in the Feeder Fund are exposed to are mitigated by the sustainability risk policies and procedures of the Master AIFM. On this basis, it is the policy of the Firm, as part of its fund risk management process, to monitor the investment decision-making of the Master AIFM and to be provided with any changes to the Master AIFM’s approach to sustainability risk.
Sustainability risk policies
A sustainability risk means “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment”. For the Firm, sustainability risks are risks which, if they were to crystallise, would cause a material negative impact on the value of the Feeder Fund’s investment in the Master Fund. The Firm sets out below its policy on the integration of sustainability risks in its investment decision-making.
Before the Firm made the investment decision on behalf of the Feeder Fund to invest in the Master Fund, the Firm considered all material risks associated with the investment strategy and policy of the Master Fund, including sustainability risks.
The Firm understands that the Master AIFM identifies and mitigates the material risks associated with each proposed investment to be made by the Master Fund, including sustainability risks, before making any investment decisions on behalf of the Master Fund, although the Master AIFM does not guarantee that it can successfully identify and mitigate all material risks. The Master AIFM is advised by its investment advisor, VenCap International plc (“Investment Advisor“), which considers sustainability risks on an investment-by-investment basis before making any investment recommendations to the Master AIFM and with regard to the Master Fund’s investment policy and objectives.
As part of its due diligence process, the Master AIFM assesses whether an underlying prospective portfolio company breaches the Master AIFM’s policies on sustainability and whether this should be considered as a material risk that merits discontinuing diligence prior to making a formal investment recommendation to the investment committees of the Master AIFM or Investment Advisor.
The Investment Advisor does not knowingly recommend an investment that is involved in certain activities which are considered to potentially bear heightened sustainability risks, in accordance with the Master AIFM’s policies on sustainability, as amended from time to time – for example, and without limitation to others, the production or distribution of non-therapeutic harmful substances (such as certain drugs, alcohol or tobacco), weapons or systems of mass destruction, the disposal of unprocessed toxic or radioactive waste.
No consideration of sustainability adverse impacts
Article 4 of the Disclosure Regulation requires fund managers to make a clear statement as to whether or not they consider the “principal adverse impacts” of investment decisions on sustainability factors.
The Firm does not consider the principal adverse impacts of its investment decisions on sustainability factors in the manner prescribed by Article 4 of the Disclosure Regulation. Nor does the Master AIFM consider them.
This is because, among other reasons, the European Commission has requested advice from the European Supervisory Authorities (“ESAs“) on (1) streamlining and developing further the regulatory framework, (2) potentially extending the lists of universal indicators for principal adverse impacts, and (3) refining the content of all the principal adverse impact indicators and their respective definitions, applicable methodologies, metrics and presentation. In addition, the ESAs have sought legal guidance from the European Commission on what it means to ‘consider’ principal adverse impacts. The Firm and Master AIFM will re-consider the approach once there is more regulatory certainty.
Until such time, the Master AIFM uses its own procedures, policies and metrics to assess the principal adverse impacts of investment decisions on sustainability factors, which do not align with those prescribed under Article 4 of the Disclosure Regulation, to deliver long-term risk adjusted returns to investors.
It is the policy of the Firm to ensure staff are paid remuneration that is consistent with and promotes sound and effective risk management and does not encourage risk-taking, which is inconsistent with the risk profiles, rules or instruments of incorporation of the Feeder Fund that it manages. Staff are predominantly paid a fixed salary and the Firm considers its sustainability risk policy, as part of its overall assessment of the Firm’s remuneration.
Risk management policy
The Firm has decided to implement a risk management policy in order to identify, monitor, control and mitigate all material risk to which the Feeder Fund is or could be exposed.
The Firm carefully analyses, on an ongoing basis, the risks associated with the assets which it acquires through its indirect investment in the Master Fund and the Master Fund’s investment in underlying venture capital funds. The Firm has adopted those parts of the business risk assessment of the Master Fund which are relevant for the Feeder Fund.
It is the policy of the Firm to consider risk to the Feeder Fund that it manages as part of its risk management procedures, including sustainability risk.