M&G CREDIT INCOME INVESTMENT TRUST

M&G Credit Income

Investment Trust plc

Annual Report and audited Financial Statements

for the year ended 31 December 2021

Company registration number: 11469317

M&G Credit Income Investment Trust

An investment trust from the fixed income experts

M&G Credit Income Investment Trust plc (the “Company”) seeks to generate high-quality, reliable income from a

diversified credit portfolio, while seeking to preserve investors’ capital through low net asset value (NAV) volatility.

The Company has the flexibility to invest in both public and private debt, which allows individual investors to access

potential opportunities normally only available to large institutions. By investing in these specialised areas, we can

construct a predominantly investment grade-quality portfolio with the potential to produce superior income to

traditional bond funds without compromising on credit quality. This is thanks to M&G’s leading market position and

decades of experience in private lending, which enables them to source deals unavailable to most other asset

managers. Through the Company’s closed-ended structure, investors can benefit from holding these private

assets to their maturity, whilst retaining access to their capital via the Company’s public listing.

Why invest in the Company?

4%+

Seeks to pay dividends of

4% above cashª

which move in line with interest

rates and help to protect against

inflation

High-quality, reliable

income

sourced primarily from private

credit, with 70%+ of the portfolio

invested in investment grade-

quality assets

Stable capital value

of private assets, which are typically

held to maturity, compared to other

investments that can offer similar

income, such as equities and high

yield bonds

Higher income potential

than comparably rated bond

portfolios thanks to M&G’s ability to

source private credit deals

Investment trust structure

allows investors to buy and sell

the Company’s shares to suit their

circumstances without affecting

the underlying portfolio

Zero discount policy

designed to enable investors to

buy and sell shares at close to NAV

M&G’s track record in public and private debt

£202 billion bonds AUM

M&G is one of the UK’s largest

credit investors, with leading

positions in private lending markets,

creating potential opportunities

unavailable to other managers

Since 1997

M&G has developed a rigorous

and selective investment process

based on more than two decades’

experience in private debt markets

136 analysts

M&G has built one of Europe’s

largest in-house credit research

teams, which provides extensive

resources required to identify

and analyse potential deals

Based on the SONIA (Sterling Overnight Index Average) interest rate benchmark administered by the Bank of England.

1Annual Report and audited Financial Statements • December 2021

Contents

M&G Credit Income Investment Trust plc

Strategic report

Company highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Chairman’s statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Investment manager’s report . . . . . . . . . . . . . . . . . . . . . . . . .7

Portfolio analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Strategic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Governance

Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Directors’ report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Corporate governance statement . . . . . . . . . . . . . . . . . . . 44

Directors’ remuneration report. . . . . . . . . . . . . . . . . . . . . . .57

Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . 64

Management report and Directors’

responsibilities statement . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Financial

Independent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . 71

Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

Statement of financial position . . . . . . . . . . . . . . . . . . . . . 83

Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . 84

Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Notes to the financial statements . . . . . . . . . . . . . . . . . . . 86

Additional information

Notice of Annual General Meeting . . . . . . . . . . . . . . . . . .105

Administrative notes in connection with the Annual

General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Shareholder communications . . . . . . . . . . . . . . . . . . . . . . 110

Company information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Alternative performance measures . . . . . . . . . . . . . . . . . 112

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Shareholder information and analysis . . . . . . . . . . . . . . . 118

Other regulatory disclosures . . . . . . . . . . . . . . . . . . . . . . .120

2 Annual Report and audited Financial Statements • December 20212

Strategic report • Governance • Financial • Additional information

Financial highlights

Key data

As at

31 December

2021

As at

31 December

2020

Net assets (£’000) 143,759 146,628

Net asset value (NAV) per

Ordinary Share

101.44p 101.40p

Ordinary Share price

(mid-market)

99.5p 92.0p

Discount to NAV

1.9% 9.3%

Ongoing charges figure

1.10%

0.87%

Return and dividends per Ordinary Share

Year ended

31 December

2021

Year ended

31 December

2020

Capital return 1.5p 1.3p

Revenue return 2.7p 2.9p

NAV total return

4.3% 3.7%

Share price total return

13.0% (9.7)%

Total dividends declared 4.04p

4.28p

Alternative performance measure. Please see pages 112 to 113 for

further information.

The increase in the ongoing charges figure mainly shows the

annualised effect of the increase in the investment management fee

from 0.5% to 0.7% per annum. This increase in fee took effect on 1 April

2021, reflecting the fact that the portfolio is now appropriately

positioned with regard to the Company’s dividend target set at launch.

The annualised dividend yield for each year was LIBOR plus 4% and

reduction in dividends declared in 2021 related to reduction in average

LIBOR during the current year.

Company highlights

NAV, dividend and NAV total return

The Company has continued to generate stable dividend returns even during periods of market instability.

Cumulative NAV total return (since inception)

NAV per Ordinary Share (pence)

Cumulative NAV total return (percentage since inception – right hand scale)

Dividend (pence)

Source: M&G and State Street as at 31 December 2021

pence

104

102

100

14%

12%

10%

-2%

97.94p

98.70p

99.36p

98.38p

2.09p

100.08p

100.94p

100.59p

101.33p

99.61p

99.50p

99.95p

100.49p

100.98p

101.72p

102.52p

100.49p

1.65p

0.71p

1.95p

95.97p

95.99p

97.23p

98.00p

0.85p

0.77p

101.18p

101.49p

102.08p

101.59p

102.04p

102.16p

101.77p

102.07p

102.09p

101.20p

101.44p

14.11.18

31.12.18

31.01.19

28.02.19

31.03.19

30.04.19

31.05.19

30.06.19

31.07.19

31.08.19

30.09.19

31.10.19

30.11.19

31.12.19

31.01.20

29.02.20

31.03.20

30.04.20

31.05.20

30.06.20

31.07.20

31.08.20

30.09.20

31.10.20

30.11.20

31.12.20

31.01.21

28.02.21

31.03.21

30.04.21

31.05.21

30.06.21

31.07.21

31.08.21

30.09.21

31.10.21

30.11.21

31.12.21

0.74p

0.76p

93.69p

98.34p

98.60p

99.23p

100.69p

101.40p

102.19p

3Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Total returns

NAV total return increased in 2021 as the portfolio continued to capture positive credit performance throughout the

year whilst mitigating the effect of rising interest rates.

14 November 2018 = 100

pence

100

105

110

115

Nov

2018

Jun

2019

Dec

2019

Jun

2020

Dec

2020

Jun

2021

Dec

2021

NAV total return

Benchmark

Share price total return

Alternative performance measure. Please see pages 112 to 113 for further information.

3 Month LIBOR +2.5% from inception to 31 December 2019, thereafter 3 Month LIBOR +4%, compounded daily.

Source: M&G

Ordinary Share price (mid-market) vs NAV

There has been a notable narrowing of the share price discount to NAV over the course of the year. The Board

implemented a “zero discount policy” in April 2021.

As at NAV per share (cum income) Share price (mid-market)

31 December 2021 101.44p 99.5p

pence

100

104

108

112

Source: M&G and State Street as at 31 December 2021.

NAVOrdinary Share price

Nov

2018

Jun

2019

Dec

2019

Jun

2020

Dec

2020

Jun

2021

Dec

2021

Company highlights

4 Annual Report and audited Financial Statements • December 20214

Strategic report • Governance • Financial • Additional information

Chairman’s statement

Performance

I am delighted to report that your Company has again

exceeded the performance originally targeted at its

Initial Public Offering (IPO). This target was to achieve an

annualised dividend yield of LIBOR plus 2.5% (on the

100p issue price) from launch until 31 December 2019

and of LIBOR plus 4% (on the opening net asset value

(NAV) per Ordinary Share) thereafter (our benchmark).

We have met this target whilst also increasing the

Company’s NAV.

Your Company’s NAV at its launch on 14 November 2018,

being the gross proceeds of the IPO less the IPO

expenses, was 98.38p per Ordinary Share. The opening

NAV on 1 January 2021 (adjusted for the last dividend for

2020) was 99.45p per Ordinary Share and the NAV on

31 December 2021 (adjusted for the last dividend for

2021) was 99.66p per Ordinary Share. Including

dividends paid, the annualised NAV total return was

4.3% since launch, whilst our benchmark return was

3.9%. NAV total return for the year to 31 December 2021

was 4.3%, compared to our benchmark return of 4.1%.

Over the year, the portfolio outperformed comparably

rated public indices such as the ICE BofA Sterling and

Collateralised Index (down by 3.0%) and the ICE BofA

European Currency Non-Financial High Yield 2%

Constrained Index (up by 3.3%). This shows our

Investment Manager’s skill in generating a stable and

attractive level of income whilst maintaining low asset

value volatility.

2021’s benign credit but volatile sovereign debt markets

provided challenging conditions in which to generate

returns. The start of the year saw an increase in

government bond yields, prompted by investor concerns

over the risks associated with inflation and economic

overheating. At the same time, corporate credit spreads

tightened to inside pre-pandemic levels, buoyed by the

support offered by central bank bond purchasing

programmes. This reduced the pool of both primary and

secondary public investment opportunities that met the

risk adjusted return profile of the Company. The

continued tightening in credit markets did, however,

allow our Investment Manager to sell down corporate

public bonds into the market strength, realising pleasing

capital gains. Proceeds were reinvested into higher

yielding private assets which both improved the credit

quality of the portfolio and generated income in excess

of comparably rated public bonds.

In the latter part of the year, inflation reached multi-

decade highs in core economies, as disruption to global

supply chains and soaring energy prices began to exert

pressure on corporate margins. After stabilising over the

summer months, government bond yields resumed their

climb higher into the final quarter of the year. By hedging

interest rate risk and maintaining low modified duration

(low sensitivity to interest rate movements), our

Investment Manager offset the effect of rising risk-free

rates on the portion of portfolio returns derived from

fixed income securities.

Share buybacks and discount

management

At the beginning of the year, your Board was concerned

that the volatility in the price of the Ordinary Shares was

not reflecting the stability and low volatility of the

underlying NAV. On 30 April 2021, we announced a ‘zero

discount’ policy (the ‘Policy’) to seek to manage the

discount or premium to NAV at which the Company’s

Ordinary Shares trade.

Your Company has undertaken a number of share

buybacks pursuant to the Policy. In addition, our

Investment Manager has held meetings over course of

the year with both existing and potential investors.

Pleasingly, these endeavours, coupled with a more

positive market backdrop, have led to a narrowing of the

discount to NAV at which the Ordinary Shares trade.

5Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Chairman’s statement

The Company’s Ordinary Share price traded at an

average discount to NAV of 5.4% during the year ended

31 December 2021. On 31 December 2021 the Ordinary

Share price was 99.5p, representing a 1.9% discount to

NAV as at that date. As at 31 December 2021, 2,882,749

shares had been purchased as part of the Policy and

were held in treasury. A further 1,350,000 shares have

been purchased into treasury since then. To date no

shares have been reissued from treasury.

As outlined in the Company’s Prospectus at the time of the

IPO, before the Company’s fifth Annual General Meeting

in 2024, the Board will formulate and submit proposals

(which may constitute a tender offer or other method of

distribution) to provide Shareholders with an opportunity

to realise the value of their Ordinary Shares at Net Asset

Value per Ordinary Share less costs. In all circumstances,

the Board will seek to balance the interests of both

continuing Shareholders and those electing to realise their

investment with a view to minimising any reduction in the

overall size of the Company.

Board

Mark Hutchinson retired from the Board on 31 August

2021. This coincided with Mark leaving his role as Chair

of Private Assets at M&G Alternatives Investment

Management Limited, your Company’s Investment

Manager. Your Board thanks him for his wise counsel,

commitment and for his considerable contribution since

the inception of the Company.

On 25 October 2021, we welcomed Jane Routledge to the

Board. Jane has spent 30 years in marketing and

communications roles in the investment management

sector, communicating with pension fund, intermediary

and private investor audiences. She has worked in a

number of investment management businesses, including

Schroders, Invesco and Hermes Fund Managers.

Dividends and transition from

LIBOR to SONIA

Your Company paid dividends in respect of the year ended

31 December 2021 in accordance with the target set at

launch: these totalled 4.04p per Ordinary Share. This

represented a dividend yield of LIBOR plus 4% on the

opening NAV as at 1 January 2021, adjusted for the

dividend paid on 26 February 2021; and a dividend yield of

4.1% on the Ordinary Share price on 31 December 2021.

Total dividends paid since launch have been fully covered

by earnings derived from income and capital gains.

The Company has, since inception, used average daily

three-month sterling LIBOR as its reference for the

purpose of its dividend rate. As at 31 December 2021, in

line with an industry-wide change, LIBOR ceased to exist

and a new measure called Sterling Overnight Index

Average (SONIA) has been adopted. A full description of

the change was contained in the Half Year Report for the

six months ended 30 June 2021.

The Board believes that it should pay dividends from

income and prior capital gains (including accumulated

capital gains from previous years). It therefore plans to

continue with three, quarterly interim dividends in

respect of each financial year plus a variable, fourth

interim dividend to be determined after each year end,

which will take into account the net income over the

whole financial year and, if appropriate, any capital

gains. The first three interim quarterly dividends to be

paid in respect of the 2022 financial year will be paid at

an annual rate of SONIA plus 3%, calculated by

reference to the opening NAV as at 1 January 2022, and

adjusted by the payment of the last dividend in respect

of 2021.

Share buybacks and discount

management (continued)

6 Annual Report and audited Financial Statements • December 20216

Strategic report • Governance • Financial • Additional information

Chairman’s statement

Outlook

Your Company’s portfolio (including irrevocable

commitments) is now 62% invested in private (non-

listed) assets, with an additional investment of some 11%

in illiquid publicly listed assets which are intended to be

held to maturity. As at 31 December 2021, your

Company’s portfolio was 85% invested in floating rate

instruments and the remaining 15% of fixed rate

exposure was hedged against falls in value from rising

interest rates. With rates set to rise further in 2022,

SONIA should also rise accordingly, which would see

dividends paid by the Company increase during the

course of the year, mitigating the effects of rising

inflation on portfolio returns.

The Company maintains access to an undrawn £25

million revolving credit facility which should enable us to

weather any future market shocks whilst having the

firepower to purchase suitable assets as they become

available.

The market volatility arising from Russia’s shocking

invasion of Ukraine on 24 February 2022 has seen credit

spreads start to widen meaningfully, with public bond

valuations beginning to look attractive again relative to

the target return of the Company. Our Investment

Manager is also seeing a healthy pipeline of private

asset opportunities. It will remain flexible in adding risk

to the portfolio from both public and private markets as

and when it sees value.

We are all saddened by the developments following the

invasion. The longer term economic consequences of

the situation are difficult to quantify as much will depend

on the length of the conflict and on any changes in

geopolitical relations. The Investment Manager has

confirmed that the portfolio has no direct exposure to

issuers in Russia, Ukraine, or Belarus. However, it has

identified a small indirect exposure via a handful of

issuers who derive some portion of their revenue from

these countries. This exposure is not considered

material. The Investment Manager is taking, and will

continue to take, all necessary actions to ensure

compliance with applicable sanctions, laws and

regulations, including those of the US, UK and EU.

Our Investment Manager believes that an annual total

return, and thus ultimately a dividend yield, of SONIA

plus 4% will continue to be achievable in the future

although there can be no guarantee that this will occur in

any individual year.

David Simpson

Chairman

23 March 2022

7Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Investment manager’s report

We are pleased to provide commentary on the factors

that have impacted our investment approach over the

last year, with particular reference to the performance

and composition of the portfolio as we have sought to

build it in accordance with the mandate agreed at IPO.

Fixed income asset classes began the year having

recovered most, if not all, of the losses incurred from the

market disruption following the onset of the COVID-19

pandemic in March 2020. Asset purchasing programmes

succeeded in keeping borrowing costs low and

corporate issuers of varying credit quality continued to

have access to cheap investor capital. Corporate

defaults fell sharply in 2021 (compared with 2020 and

2019) as the continued economic recovery and ample

liquidity offset the effects of COVID-19 and supply chain

disruptions, labour shortages and high inflation. This

contributed to unusually benign credit conditions

throughout the year which have continued into 2022.

Investors looking for increased returns were forced

down the credit curve into ‘riskier’ sectors and in many

cases, out of investment grade and into high yield credit.

This caused corporate credit spreads to grind tighter for

much of the year, reaching multi-year lows by the end of

the third quarter.

By contrast, the year saw upward pressure on

government bond yields gain momentum as investor

concerns over the spread of the Delta variant and a

slowdown in economic growth were overtaken by those

of inflation and economic overheating, which led to

increased volatility in rates markets. As inflation figures

continued to surprise to the upside, reaching multi-

decade highs, investors increasingly questioned the

“transitory” inflation narrative set forth by central banks.

The 10 year UK gilt climbed above one percent for the

first time since the onset of the pandemic and ensuing

market turmoil in March 2020.

Investment grade and high yield spreads widened

slightly into the year end, following concerns over supply

bottlenecks and increased energy prices reducing

economic growth and company margins. In addition, the

emergence of details of a new COVID variant, Omicron,

in late November also contributed to spreads widening.

The potential return to COVID related economic

disruption led to a repricing in markets as investors

moved away from risk assets and into safer havens such

as government bonds. Fears over the new variant eased

into the year’s close and investor focus shifted back to

central bank action and signalling for the path of

monetary policy in 2022.

Portfolio activity and positioning

The focus in public markets for much of the year was the

rise of inflation and the reaction of sovereign debt

markets. Whilst risk-free rates climbed higher, corporate

credit spreads ground even tighter, reflecting investors’

benign view of the credit outlook amid ample liquidity

and continued policy support. Against this backdrop, the

Company began the year cautiously positioned and

continued to reduce risk over the period. The Company’s

short position in the 10 year gilt future successfully

offset any depreciation in the value of the portfolio’s

holdings resulting from the change in interest rates.

In contrast to the market in government interest rates,

volatility in credit remained subdued with central banks

committed to providing monetary stimulus in the short

term and corporate balance sheets strengthened by

proceeds from record debt issuance during 2020. As

investment grade and high yield credit spreads

continued to tighten during the year, our appetite to

invest in large parts of the public market remained

limited. We were able to take advantage of this market

strength to sell down public bonds and realise notable

capital gains in the portfolio, whilst reinvesting proceeds

into higher yielding private assets.

Investment manager’s report

8 Annual Report and audited Financial Statements • December 20218

Strategic report • Governance • Financial • Additional information

Outlook

In 2022, the key theme for markets will be inflation and

the reaction of central banks, whilst the wide reaching

economic implications of Russia’s invasion of Ukraine

has added additional complexity to any decision making.

Recent central bank signalling has been hawkish,

indicating that combatting inflation is currently the main

priority and is viewed with greater emphasis than a

deteriorating growth backdrop. At the end of 2021, the

Federal Reserve announced that its pandemic bond

buying programme would end in March 2022 and market

expectations are for its policy rate to increase by six

additional 25bps hikes to reach 1.9% by the end of 2022.

Correspondingly, the market is also pricing six additional

25bps interest rate increases from the Bank of England

which would see its base rate reach 2.1% by the end

2022. Both the Federal Reserve and Bank of England

have signalled they will soon begin reducing the size of

their balance sheets (quantitative tightening) with the

latter announcing that £20 billion of sterling corporate

bonds would be sold back into the market. This has seen

risk-free rates climb higher whilst credit spreads have

simultaneously widened, with overall bond yields moving

notably higher as a result. These shifts in monetary

policy are viewed by many investors as being overly-

aggressive and have contributed to heightened volatility

in bond markets.

Russia’s attack on Ukraine on 24 February 2022 has

sparked considerable volatility in both equity and credit

markets and complicated the path of monetary policy,

given the threat to global economic growth at a time of

already record inflation and the potential risk of

stagflation. The commodity shock induced by the crisis

has already seen a surge in the price of crude oil, natural

gas and metals such as copper and nickel which, in

addition to increased supply chain disruption, is creating

further upward inflationary pressure.

In the private market, transactions continued to offer

attractive illiquidity premia to comparable public issues,

providing high quality income which contributed

significantly to strong portfolio performance. The

resilience and adaptability of the asset class during the

ongoing COVID-19 pandemic has proved its value in

balancing out the more variable and lower-returning

public markets.

As the year progressed, bond purchases in the public

market remained selective as valuations in both

Investment Grade and High Yield continued to look

expensive by historical standards, on a risk-adjusted

basis. We continued to reduce risk, taking advantage of

the sustained strength in credit markets to sell down

bonds that were purchased at much wider spreads

during 2020 following the initial shock of the COVID-19

pandemic. These were bonds that had tightened in to

offer yields well inside our long-term return objective

and their sale also enabled us to realise further capital

gains. We continued reinvesting proceeds from public

bond sales into higher yielding private assets with strong

structural protections which improved the credit quality

of the portfolio. Toward the end of the year we

purchased the senior, AAA rated tranches in some of the

new issue CLOs, which appeared attractively priced

relative to investment grade corporate bonds.

We transacted a notable number of private deals over

the course of the year, across various asset types

offering exposure to a diverse range of sectors, all of

which offered a significant spread increase versus

public comparators. As at 31 December 2021, the

funded private asset portion of the portfolio had

increased to 56.5% (versus 44.1% at 31 December 2020)

with an additional investment of 5.3% in private assets

transacted after the period end, or committed to be

drawn down beyond the date of this report. This is

expected to take the Company’s overall private asset

exposure to approximately 61.8%.

Investment manager’s report

Portfolio activity and positioning

(continued)

9Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Investment manager’s report

The early part of the year has seen credit yields increase.

Against a backdrop of tighter borrowing conditions and

rising input costs, corporate margins look set to be

squeezed and company balance sheets will be put under

increasing pressure. Corporate credit analysis and

selectivity will be key as market conditions in 2022 have

already proved to be far less benign than 2021. If current

conditions continue, we will seek to increase the yield of

the portfolio by selling our cash proxy ABS holdings and

reinvesting proceeds into new private investment

opportunities and attractively priced investment grade

corporate bonds. The rotation into private assets with

stronger structural protections will provide stability of

capital value. Volatility in public credit markets also

presents the Investment Manager with the potential

opportunity to add bonds into the portfolio with risk

adjusted returns that are more in line with the

Company’s long term objective. The Company’s access

to the £25 million credit facility also provides the

Investment Manager with additional scope to take

advantage of any further volatility. The current pipeline

of private asset opportunities looks very healthy, with a

number of deals in the process of being negotiated that

we are hopeful of completing in the first half of the year.

M&G Alternatives Investment Management Limited

23 March 2022

Outlook (continued)

10 Annual Report and audited Financial Statements • December 202110

Strategic report • Governance • Financial • Additional information

Top 20 holdings

As at 31 December 2021 Percentage of

portfolio of

investments

M&G European Loan Fund 12.45

Sonovate Limited Var. Rate 12 Apr 2022 2.04

Westbourne 2016 1 WR Senior Var. Rate 30

Sep 2023

1.63

Delamare Finance FRN 1.279% 19 Feb 2029 1.62

Atlas 2020 1 Trust Var. Rate 30 Sep 2050 1.61

Hall & Woodhouse Var. Rate 30 Dec 2023 1.56

Lewisham Var. Rate 12 Feb 2023 1.50

Finance for Residential Social Housing

8.569% 4 Oct 2058

1.48

PE Fund Finance III Var. Rate 16 Dec 2022 1.44

Newday Partnership Funding 2017-1 FRN

0.8053% 15 Dec 2027

1.42

Signet Excipients Var. Rate 20 Oct 2025 1.40

Hammond Var. Rate 28 Oct 2025 1.35

Regenter Myatt Field North Var. Rate

31 Mar 2036

1.33

RIN II FRN 1.778% 10 Sep 2030 1.31

Dragon Finance FRN 1.3665% 13 Jul 2023 1.20

CIFC European Funding Var. Rate

23 Nov 2034

1.19

NewRiver REIT 3.5% 7 Mar 2028 1.08

Marston's Issuer FRN 1.7083% 15 Oct 2031 1.07

Finance for Residential Social Housing

8.369% 4 Oct 2058

1.07

Ripon Mortgages FRN 1.2814% 20 Aug 2056 1.07

Total 38.82

Including cash on deposit and derivatives.

Source: State Street.

Geographical exposure

Percentage of portfolio of investments

as at 31 December 2021

Source: M&G and State Street as at 31 December 2021

United Kingdom 59.47%

United States 8.05%

European Union 6.16%

Australia 2.90%

France 2.28%

Other 21.14%

Excluding cash on deposit and derivatives.

Portfolio overview

As at 31 December 2021 %

Cash on deposit 0.43

Public 42.66

Asset-backed securities 25.78

Bonds 16.88

Private 56.47

Asset-backed securities 6.14

Bonds 2.46

Investment funds 12.45

Loans 22.37

Private placements 2.21

Other 10.84

Derivatives 0.44

Debt derivatives (0.03)

Forwards 0.47

Total 100.00

Source: State Street.

Portfolio analysis

11Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Credit rating breakdown

As at 31 December 2021 %

Unrated 0.44

Derivatives 0.44

Cash and investment grade 74.54

Cash on deposit 0.43

AAA 9.62

AA+ 1.69

AA 5.92

AA- 0.73

A+ 0.83

A 0.65

A- 2.12

BBB+ 10.60

BBB 13.17

BBB- 19.07

M&G European Loan Fund (ELF) (see note) 9.71

Sub-investment grade 25.02

BB+ 4.12

BB 5.79

BB- 2.46

B+ 4.26

B 3.29

B- 1.67

CCC- 0.48

D 0.21

M&G European Loan Fund (ELF) (see note) 2.74

Total 100.00

Source: State Street.

Note: ELF is an open-ended fund managed by M&G that invests in

leveraged loans issued by, generally, substantial private companies

located in the UK and Continental Europe. ELF is not rated and the

Investment Manager has determined an implied rating for this investment,

utilising rating methodologies typically attributable to collateralised loan

obligations. On this basis, 78% of the Company’s investment in ELF has

been ascribed as being investment grade, and 22% has been ascribed as

being sub-investment grade. These percentages have been utilised on a

consistent basis for the purposes of determination of the Company’s

adherence to its obligation to hold no more than 30% of its assets in

below investment grade securities.

Portfolio analysis

12 Annual Report and audited Financial Statements • December 202112

Strategic report • Governance • Financial • Additional information

Portfolio analysis

Top 20 holdings %

as at 31 December 2021

Company description

M&G European Loan Fund

12.45%

Open-ended fund managed by M&G which invests in leveraged loans

issued by, generally, substantial private companies located in the UK and

Continental Europe. The fund’s objective is to create attractive levels of

current income for investors while maintaining relatively low volatility of

NAV. (Private)

Sonovate Limited Var. Rate 12 Apr 2022

2.04%

Bilateral loan to a company providing companies in the recruitment

industry with an integrated service that incorporates placement

management, invoicing and financing. (Private)

Westbourne 2016 1 WR Senior Var. Rate 30 Sep 2023

1.63%

Westbourne provides working capital finance to SMEs in the UK. The

company is focused on small borrowers and has employed an advanced

technology platform for the application, underwriting and monitoring of

loans. (Private)

Delamare Finance FRN 1.279% 19 Feb 2029

1.62%

Floating-rate, senior tranche of a CMBS secured by the sale and

leaseback of 33 Tesco superstores and 2 distribution centres. (Public)

Atlas 2020 1 Trust Var. Rate 30 Sep 2050

1.61%

Floating-rate, senior tranche of a bilateral RMBS transaction backed by a

pool of Australian equity release mortgages. (Private)

Hall & Woodhouse Var. Rate 30 Dec 2023

1.56%

Bilateral loan to a regional UK brewer that manages a portfolio of 219

freehold and leasehold pubs. (Private)

Lewisham Var. Rate 12 Feb 2023

1.50%

Senior secured, fixed-rate term loan funding the costs of acquiring and

developing a site in Lewisham to provide 758-bed purpose-built student

accommodation and 67 affordable housing units. (Private)

Finance for Residential Social Housing 8.569%

4 Oct 2058

1.48%

High grade (AA/Aa3), fixed-rate bond backed by cash flows from housing

association loans. (Public)

PE Fund Finance III Var. Rate 16 Dec 2022

1.44%

Senior secured commitment providing NAV facility financing to a private

equity firm investing in debt and equity special situations across Europe.

(Private)

Newday Partnership Funding 2017-1 FRN 0.8053%

15 Dec 2027

1.42%

High Grade ABS (AAA). UK Credit card. Securitisation of a portfolio of

designated consumer credit card, store card and instalment credit

accounts initially originated or acquired by NewDay Ltd in the UK. (Public)

Signet Excipients Var. Rate 20 Oct 2025

1.40%

Fixed-rate loan secured against 2 large commercial premises in London,

currently leased to 2 FTSE listed UK corporations. (Public)

Hammond Var. Rate 28 Oct 2025

1.35%

Secured, bilateral real estate development loan backed by a combined

portfolio of 2 office assets leased to an underlying roster of global

corporate tenants. (Private)

Regenter Myatt Field North Var. Rate 31 Mar 2036

1.33%

PFI (Private Finance Initiative) floating-rate, amortising term loan relating

to the already completed refurbishment and ongoing maintenance of

residential dwellings and communal infrastructure in the London borough

of Lambeth. (Private)

RIN II FRN 1.778% 10 Sep 2030

1.31%

Mixed CLO (AAA). Consists primarily of senior secured infrastructure

finance loans managed by RREEF America L.L.C. (Public)

Dragon Finance FRN 1.3665% 13 Jul 2023

1.20%

Floating-rate, subordinated tranche of a securitisation of the sale and

leaseback of 10 supermarket sites sponsored by J Sainsbury plc

(“Sainsbury’s”). (Public)

13Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Portfolio analysis

Top 20 holdings %

as at 31 December 2021

Company description

CIFC European Funding Var. Rate 23 Nov 2034

1.19%

Mixed CLO (AAA) backed by a portfolio of senior loan obligations,

mezzanine loan obligations and high yield bonds managed by CIFC Asset

Management Europe Ltd. (Public)

NewRiver REIT 3.5% 7 Mar 2028

1.08%

NewRiver REIT PLC operates as a real estate investment trust investing in

retail properties throughout the United Kingdom. Fixed, callable bond.

Senior Unsecured. (Public)

Marston’s Issuer FRN 1.7083% 15 Oct 2031

1.07%

Marston’s PLC is a leading independent brewing and pub retailing

business. Marston’s Issuer PLC operates as a special purpose entity on

behalf of Marstons PLC, formed for the purpose of issuing debt securities

to repay existing credit facilities, refinance indebtedness, and for

acquisition purposes. (Public)

Finance for Residential Social Housing 8.369%

4 Oct 2058

1.07%

High grade (AA), fixed rate bond backed by cash flows from housing

association loans. (Public)

Ripon Mortgages FRN 1.2814% 20 Aug 2056

1.07%

High Grade ABS (AA+/Aaa). UK RMBS. The portfolio comprises buy-to-let

loans originated by Bradford and Bingley and Mortgage Express, secured

over residential properties located in England and Wales. (Public)

14 Annual Report and audited Financial Statements • December 202114

Strategic report • Governance • Financial • Additional information

Strategic review

The Directors present the Strategic Review Report of

the Company for the year ended 31 December 2021. The

Strategic Report aims to provide Shareholders with the

information to assess how the Directors have performed

their duty to promote the success of the Company

during the year under review.

Business and status of the

Company

The Company was incorporated on 17 July 2018 and the

Initial Public Offering (IPO) of the Company’s shares took

place on 14 November 2018.

The Company is registered in England and Wales as a

public limited company and is an investment company

within the terms of Section 833 of the Companies Act

The principal activity of the Company is to carry

on business as an investment trust.

The Company has been approved by HM Revenue &

Customs as an authorised investment trust under

Sections 1158 and 1159 of the Corporation Tax Act 2010.

In the opinion of the Directors, the Company is directing

its affairs so as to enable it to continue to qualify for

such approval.

The Company’s shares have a listing on the premium

segment of the Official List of the FCA and trade on the

London Stock Exchange’s (LSE) main market for listed

securities.

Investment objective

The Company aims to generate a regular and attractive

level of income with low asset value volatility.

Investment policy

The Company seeks to achieve its investment

objectiveby investing in a diversified portfolio of

publicand private debt and debt-like instruments

(“DebtInstruments”). Over the longer term, it is

expected that the Company will be mainly invested in

private Debt Instruments, which are those instruments

not quoted on a stock exchange.

The Company operates an unconstrained investment

approach and investments may include, but are not

limited to:

●

Asset-backed securities, backed by a pool of loans

secured on, amongst other things, residential and

commercial mortgages, credit card receivables,

auto loans, student loans, commercial loans and

corporate loans;

●

Commercial mortgages;

●

Direct lending to small and mid-sized companies,

including lease finance and receivables financing;

●

Distressed debt opportunities to companies going

through a balance sheet restructuring;

●

Infrastructure-related debt assets;

●

Leveraged loans to private equity owned

companies;

●

Public Debt Instruments issued by a corporate or

sovereign entity which may be liquid or illiquid;

●

Private placement debt securities issued by both

public and private organisations; and

●

Structured credit, including bank regulatory capital

trades.

The Company invests primarily in Sterling denominated

Debt Instruments. Where the Company invests in assets

not denominated in Sterling, it is generally the case that

these assets are hedged back to Sterling.

15Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Strategic review

Investment restrictions

There are no restrictions, either maximum or minimum,

on the Company’s exposure to sectors, asset classes or

geography. The Company, however, achieves

diversification and a spread of risk by adhering to the

limits and restrictions set out below.

The Company’s portfolio comprises a minimum of

50investments.

The Company may invest up to 30% of Gross Assets in

below investment grade Debt Instruments, which are

those instruments rated below BBB- by S&P or Fitch or

Baa3 by Moody’s or, in the case of unrated

DebtInstruments, which have an internal M&G rating

below BBB-.

The following restrictions will also apply at the individual

Debt Instrument level which, for the avoidance of doubt,

does not apply to investments to which the Company is

exposed through collective investment vehicles:

Rating Secured Debt

Instruments (% of

Gross Assets)

Unsecured Debt

Instruments (% of

Gross Assets)

AAA 5% 5%

AA/A 4% 3%

BBB 3% 2%

Below investment

grade

2% 1%

Secured Debt Instruments are secured by a first or secondary fixed

and/or floating charge.

This limit excludes investments in G7 Sovereign Instruments.

For the purposes of the above investment restrictions,

the credit rating of a Debt Instrument is taken to be the

rating assigned by S&P, Fitch or Moody’s or, in the case

of unrated Debt Instruments, an internal rating by M&G.

In the case of split ratings by recognised rating agencies,

the second highest rating will be used.

The Company typically invests directly, but it also invests

indirectly through collective investment vehicles which

are managed by an M&G Entity. The Company may not

invest more than 20% of Gross Assets in any one

collective investment vehicle and not more than 40% of

Gross Assets in collective investment vehicles in

aggregate. No more than 10% of Gross Assets may be

invested in other investment companies which are listed

on the Official List.

Unless otherwise stated, the above investment

restrictions are to be applied at the time of investment.

Borrowings

The Company is managed primarily on an ungeared

basis although the Company may, from time to time,

begeared tactically through the use of borrowings.

Borrowings will principally be used for investment

purposes, but may also be used to manage the

Company’s working capital requirements or to fund

market purchases of Shares. Gearing represented by

borrowing will not exceed 30% of the Company’s Net

Asset Value, calculated at the time of draw down, but is

typically not expected to exceed 20% of the Company’s

Net Asset Value.

Hedging and derivatives

The Company will not employ derivatives for investment

purposes. Derivatives may however be used for efficient

portfolio management, including for currency hedging.

Cash management

The Company may hold cash on deposit and may invest

in cash equivalent investments, which may include

short- term investments in money market-type funds

(“Cash and Cash Equivalents”).

There is no restriction on the amount of Cash and Cash

Equivalents that the Company may hold and there may

be times when it is appropriate for the Company to have

a significant Cash and Cash Equivalents position. For the

avoidance of doubt, the restrictions set out above in

relation to investing in collective investment vehicles do

not apply to money market type funds.

Changes to the investment policy

Any material change to the Company’s investment policy

set out above will require the approval of Shareholders

by way of an ordinary resolution at a general meeting

and the approval of the Financial Conduct Authority

(FCA).

Investment policy (continued)

16 Annual Report and audited Financial Statements • December 202116

Strategic report • Governance • Financial • Additional information

Regular monitoring is carried out to ensure that

continued holding of an investment remains appropriate.

This includes monitoring the performance of

investments by fund managers, analysts and internal

control and governance processes. The Investment

Manager engages with relevant stakeholders on any

issues which may, potentially, affect an investment’s

ability to deliver sustainable performance in line with

those expectations.

At some point, the Investment Manager may decide to

divest from an investment (or the investment may

complete in line with agreed terms, including pre-

payment), although typically, private investments are

held to their full maturity. Divestment can occur for a

variety of reasons including; the investment being no

longer suitable for the investment mandate, the outcome

of engagement being unsatisfactory or as a result of the

investment team’s valuation assessment. Investment

decision making is only undertaken by the fund

managers designated by the Investment Manager.

As part of the investment process, full consideration is

given to sustainability risks, as set out in more detail on

pages 35 to 36.

Investment process overview

On-going monitoring

Analyst and Portfolio Manager

Portfolio Construction

Portfolio Manager

Independent Credit Rating

Credit Committee or Analyst

Credit Analysis

Analyst

Source Opportunity

Portfolio Manager or Analyst

Investment strategy

The Company seeks to achieve its investment objective

by investing in a diversified portfolio of public and

private debt and debt-like instruments of which at least

70% is investment grade. The Company is mainly

invested in private debt instruments. This part of the

portfolio generally includes debt instruments which are

nominally quoted but are generally illiquid. Most of these

will be floating rate instruments, purchased at inception

and with the intention to be held to maturity or until

prepaid by issuers; shareholders can expect their

returns from these instruments to come primarily from

the interest paid by the issuers.

The remainder of the Company’s portfolio is invested in

cash, cash equivalents and quoted debt instruments,

which are more readily available and which can generally

be sold at market prices when suitable opportunities

arise. These instruments may also be traded to take

advantage of market conditions. Fixed rate instruments

will often be hedged in order to protect the portfolio

from adverse changes in interest rates. Shareholders

can expect their returns from this part of the portfolio to

come from a combination of interest income and capital

movements.

Investment process

The investment process for the Company consists

principally of three stages: the decision to invest,

monitoring and ongoing engagement and finally

divestment.

Investment decision-making is undertaken by the

Investment Manager, based on extensive research and

credit analysis by the Investment Manager’s large and

experienced teams of 136 in-house analysts who

specialise in public and private debt markets. This

rigorous in depth analysis is fundamental to

understanding the risk and return profile of potential

investments.

Strategic review

17Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Strategic review

Key performance indicators

In order to measure the success of the Company in

meeting its objectives and policy, and to evaluate the

performance of the Investment Manager, the Directors

take into account the following key performance

indicators (KPIs):

As at or

year ended

31 December

2021

As at or

year ended

31 December

2020

NAV per share 101.44p 101.40p

Ordinary Share price

(mid-market)

99.5p 92.0p

Discount to NAV

1.9% 9.3%

Annualised dividend

yield

4.1% 4.7%

Dividends declared per

Ordinary Share

4.04p 4.28p

Revenue return per

Ordinary Share

2.7p 2.9p

NAV total return

4.3% 3.7%

Share price total return

13.0% (9.7)%

Ongoing charges figure

1.10%

0.87%

Alternative performance measure. Please see pages 112 to 113 for

further information.

The increase in the ongoing charges figure mainly shows the

annualised effect of the increase in the investment management fee

from 0.5% to 0.7% per annum. This increase in fee took effect on 1 April

2021, reflecting the fact that the portfolio is now appropriately

positioned with regard to the Company’s dividend target set at launch.

Share price discount or premium to NAV

The share price discount to NAV as at 31 December 2021

was 1.9% (31 December 2020: 9.3%). During the year to

31 December 2021 the shares traded at an average

discount to NAV of 5.4%.

Dividend yield

The Company paid dividends during the year on a

quarterly basis. The fourth dividend of 1.95p per

Ordinary Share in respect of the period ended

31 December 2020 was paid on 26 February 2021.

The first quarterly dividend in respect of the year ended

31 December 2021 of 0.74p per Ordinary Share was paid

on 28 May 2021. The second quarterly dividend of 0.76p

per Ordinary Share was paid on 27 August 2021 and the

third quarterly dividend of 0.76p per Ordinary Share was

paid on 26 November 2021.

The fourth quarterly dividend of 1.78p per Ordinary Share

was paid on 25 February 2022. The total dividend

declared per share for the year ended 31 December 2021

was 4.04p (year ended 31 December 2020: 4.28p).

The annualised dividend yield for the year was 4.1%,

based on the closing share price on 31 December 2021

(2020: 4.7%).

Portfolio performance

In support of the Company’s investment objective, the

Board monitors the portfolio performance against the

benchmark of a NAV total return of SONIA

plus 4% per

annum. In addition, performance is assessed against a

number of total return indices in public investment grade

and high yield markets.

In addition, progress of deployment of funds into private

assets is monitored alongside the balance of fixed to

floating rate coupons, yield to maturity and modified

duration of the portfolio. Further details are provided in

the Chairman’s statement on pages 4 to 6 and

Investment Manager’s report on pages 7 to 9.

LIBOR plus 4% for the year ended 31 December 2021.

Ongoing charges

The Board reviews the costs of running the Company

calculated using the Association of Investment

Companies’ (AIC) methodology for the ongoing charges.

Full details are provided on page 112.

Risk management

Role of the Board

The Directors have overall responsibility for risk

management and internal control within the Company.

They recognise that risk is inherent in the Company’s

operation and that effective risk management is an

important element in the success of the organisation.

The Directors have delegated responsibility for the

assurance of the risk management process and the

review of mitigating controls to the Audit Committee.

18 Annual Report and audited Financial Statements • December 202118

Strategic report • Governance • Financial • Additional information

The Directors, when setting the risk management

strategy, also determine the nature and extent of the

significant risks and their risk appetite in implementing

this strategy.

In arriving at its judgement of what risks the Company

faces, the Board has considered the Company’s

operations in the light of the following factors:

●

the nature and extent of risks it regards as

acceptable for the Company to bear in line with its

overall business objective;

●

the threat of such risks becoming reality;

●

the Company’s ability to reduce the incidence and

impact of risk on its performance;

●

the cost to the Company and benefits related to the

review of risk and associated controls of the

Company; and

●

the extent to which the third-party service

providers operate the relevant controls.

Principal risks

The Company is exposed to a variety of risks that could

cause the valuation of its assets and/or the income from

the investment portfolio to fluctuate. The Board, through

delegation to the Audit Committee, has undertaken a

robust assessment and review of the principal and

emerging risks facing the Company, including those that

would threaten its business model, future performance,

solvency or liquidity. Accordingly, the Audit Committee

has taken into consideration the risks posed to the

Company by the societal and economic impacts of

governmental responses to the ongoing COVID-19

pandemic and considered the impact on the Company’s

net asset value and performance.

The pandemic has triggered, and may continue to

trigger, increased volatility in terms of global risk asset

valuations as well as presenting operational challenges

for the Company’s service providers as they respond to

various limitations on free movement of staff imposed

by governments across the world. The Board continues

to receive regular reporting from the Company’s major

service providers and does not anticipate a fall in the

level of service. The duration and ultimate impact of the

pandemic is not presently possible to predict and the

Board will continue to monitor and report on material

developments on an ongoing basis.

These risks are formally documented in the Company’s

risk register, so that the risks identified and the controls

in place to mitigate those risks can be monitored. The

Audit Committee reviews and discusses potential new

and emerging risks to the Company including those

identified by the Investment Manager. Any new or

emerging risks that are identified and that are

considered to be of significance are also included in the

Company’s risk register together with any mitigating

actions required.

The Board will continue to assess these risks on an

ongoing basis. In relation to the UK Code, the Board is

confident that the procedures that the Company has put

in place are sufficient to ensure that the necessary

monitoring of risks and controls has been carried out

throughout the reporting period.

The key risks identified by the Board, and the associated

key mitigants and controls, are set out below:

Strategic review

Risk management (continued)

19Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Key Risk Key Mitigants and Controls

Market risk

Market risk embodies the potential for both losses and

gains and includes foreign currency risk, interest rate

risk and price risk. Market risk mainly arises from

uncertainty about future values of financial instruments

influenced by price, currency and interest rate

movements. It represents the potential gain or loss that

the Company may suffer through holding market

positions in investments in the face of market

movements.

Market risk includes the potential impact of events that

are outside the Company’s control, such as the

COVID-19 pandemic.

Key mitigants and controls are set out in the sub-

headings below.

Foreign currency risk

Foreign currency risk is the risk that the fair value of

future cash flows of a financial instrument will fluctuate

because of changes in foreign exchange rates. The

Company is exposed to risks that the exchange rate of

its reporting currency relative to other currencies may

change in a manner that has an effect on the value of

the portion of the Company’s assets which are

denominated in currencies other than its own reporting

currency.

The Company fully hedges non-base currency

investments at time of purchase using spot and forward

foreign exchange contracts which are rolled forward

periodically. Non-base currency exposure is monitored

on an ongoing basis via internal systems, with hedging

maintained at approximately +/-20bps tolerance.

Interest rate risk

Interest rate risk is the risk that the fair value of future

cash flows of a financial instrument will fluctuate

because of changes in market interest rates. The

Company’s investments are in some cases subject to

interest rate risk. In relation to fixed-rate obligations,

when interest rates decline, the values can be expected

to rise, and, conversely, when interest rates rise, the

value of fixed-rate obligations can be expected to

decline.

The Company uses gilt futures contracts to mitigate

interest rate risk with portfolio duration monitored on an

ongoing basis via internal systems and adjusted

accordingly. Market conditions since launch have seen

the Company maintain an average modified duration of

between 1-1.5 years. There are no restrictions regarding

the level of duration the Company can maintain however

its Investment Objective outlines commitment to low

asset value volatility.

Risk management (continued)

Strategic review

20 Annual Report and audited Financial Statements • December 202120

Strategic report • Governance • Financial • Additional information

Key Risk (continued) Key Mitigants and Controls (continued)

Market price risk

Market price risk includes changes in market prices,

other than those arising from foreign currency or

interest rate risk, which may affect the value of

investments, such as macroeconomic and geopolitical

events and trends, and sectoral influences.

As the Company invests in public and private debt

instruments, it is regularly exposed to market risk and

the value of the Company’s portfolio fluctuates in

response to developments in financial markets.

The Board has put in place limits on the Company’s

gearing, portfolio concentration and use of derivatives,

which it believes to be appropriate to keep the

Company’s investment portfolio adequately diversified

and to manage risk.

Credit risk

Because of its investment strategy, the Company is also

materially exposed to credit risk, which is the risk that

one party to a financial instrument will cause a financial

loss for the other party by failing to discharge an

obligation. The main concentration to which the

Company is exposed arises from the Company’s

investments in Debt Instruments.

The Company is also exposed to counterparty credit

risk on trading derivative products, Cash and Cash

Equivalents, amounts due from brokers and other

receivable balances.

The Company’s policy to manage this risk is to invest no

more than 30% of the Company’s assets in Debt

Instruments that have a minimum credit rating below

BBB- (or equivalent). Within the above limit, the

Company may also invest in unrated assets where a

rating is assigned by the Investment Manager using an

internal methodology that is based on the

categorisations used by rating agencies. When new

investment opportunities arise, a detailed credit review

is undertaken by the Investment Manager. A

fundamental qualitative and quantitative assessment of

both business and financial risk, supported by

appropriate financial modelling, alongside a review of

the corporate structure and issuance document form

the basis of the credit review. On an ongoing basis, the

Investment Manager monitors the Company’s

investments against a variety of measures including

financial performance and their progress against a

variety of covenants.

The Company only transacts with parties that the

Investment Manager considers to be suitable from a

credit risk perspective.

Risk management (continued)

Strategic review

21Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Key Risk (continued) Key Mitigants and Controls (continued)

Investment management performance risk

Other than in respect of market risk, the performance

of the Company’s portfolio of assets depends primarily

on the investment strategy, asset allocation and stock

selection decisions taken by the Investment Manager

within the parameters and constraints imposed by the

Company’s investment policy.

The Investment Manager applies a ‘three lines of

defence’ model for risk management, incorporating the

individual fund manager and line management;

independent risk and compliance functions and

reporting structures; and internal audit. Measures and

tools such as volatility estimation, value at risk analysis

and stress testing are used in order to better

understand risk concentrations within the portfolio.

Liquidity risk

The Company invests in public and private debt

instruments. Some of these investments may be

difficult to value or realise (if at all). The market price

that is achievable for such investments may ultimately

therefore be different than the carrying values of these

assets as reflected in the Company’s reported NAV per

Ordinary Share from time to time.

As the Company is closed-ended, it is not exposed to

the same risks of liquidity mismatch that are inherent in

the management of portfolios owned by open-ended

funds. This enables the Company to invest in assets that

have limited or no secondary market liquidity in order to

seek to capture the additional yield that is generally

available compared to more liquid instruments.

Before the Company’s fifth AGM in 2024, the Board will

submit to Shareholders proposals to enable them to

realise the value of their Ordinary Shares. The Board

monitors the liquidity profile of the Company’s assets on

a quarterly basis through the receipt of an asset liquidity

analysis from the Investment Manager.

Dividend policy risk

The level of dividends that the Board will declare will be

dependent largely on the performance of the

Company’s investment portfolio over time and the

market conditions that exist during relevant

performance periods. Apart from asset selection and

market conditions, factors that may also affect

performance include, inter alia, the Company’s level of

gearing, its accounting policies, changes in variable

interest rates, the level of loan or bond prepayments

and a change in the tax treatment of the interest

received by the Company.

The Investment Manager runs a dividend projection

model that is regularly reviewed by the Board.

Risk management (continued)

Strategic review

22 Annual Report and audited Financial Statements • December 202122

Strategic report • Governance • Financial • Additional information

Key Risk (continued) Key Mitigants and Controls (continued)

Operational risk

In common with most other investment trusts, the

Company has no executive directors, no executive

management and no employees. The Company

delegates key operational tasks to third-party service

providers that are specialists in their fields as follows:

●

Management of the Company’s investment

portfolio to M&G Alternatives Investment

Management Limited

●

Preparation and maintenance of the Company’s

Financial Statements and maintenance of its

records to State Street Bank and Trust Company

●

Company Secretarial Services to Link Company

Matters Limited

●

Registrar services to Link Group

●

Worldwide custody of the Company’s assets to

State Street Bank and Trust Company

●

Safekeeping and depositary services to

StateStreet Trustees Limited

Failure by any service provider to carry out its

obligations to the Company in accordance with the

terms of its appointment could have a materially

detrimental impact on the operation of the Company or

administration of its investments. The termination of the

Company’s relationship with any third-party service

provider or any delay in appointing a replacement for

such service provider could disrupt the business of the

Company materially and could have a material adverse

effect on the Company’s performance.

Due diligence is undertaken before contracts are

entered into with third-party service providers.

Thereafter, service provider oversight is conducted

through ongoing interaction with the Management

Engagement and Audit Committees and is formalised

through an annual evaluation process.

Most third party service providers produce internal

control reports to provide assurance regarding the

effective operation of internal controls as reported on

by their reporting accountants. These reports are

provided to the Audit Committee for review by the

Investment Manager’s Supplier Management Team. The

Committee would seek further representations from the

service providers if not satisfied with the effectiveness

of their control environment.

The Management Engagement and Audit Committees

also consider the business continuity arrangements of

the Company’s key service providers and review these

as part of the review of the Company’s risk register.

In respect of the risks posed by the COVID-19 pandemic

in terms of the ability of service providers to function

effectively, the key service providers have reviewed

their operations. Having considered their arrangements

and reviewed service levels since the crisis has evolved,

the Committees and Board are confident that a good

level of service has been and will be maintained.

Risk management (continued)

Strategic review

23Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Key Risk (continued) Key Mitigants and Controls (continued)

Regulatory, legal and statutory risk: changes in laws,

government policy or regulations

The Company is subject to laws, government policy and

regulations enacted by national and local governments.

Any change in the law, regulation or government policy

affecting the Company may have a material adverse

effect on the value of its investments, its ability to carry

on its business and successfully pursue its investment

policy and on its earnings and returns to Shareholders.

In particular, the Company is required to comply with

certain requirements that are applicable to listed

closed- ended investment companies, including

Section1158 of the Corporation Tax Act 2010. Any

failure to comply may potentially result in a loss of

investment trust company status.

The Company must comply with the Listing Rules,

Prospectus Rules, the Disclosure Guidance and

Transparency Rules, the Market Abuse Regulation

(MAR) and the rules of the London Stock Exchange. Any

failure in future to comply with any future changes to

such rules and regulations may result in the shares

being suspended from trading on the London Stock

Exchange.

MAR can be defined as Regulation (EU) No 596/2014 of

the European Parliament on market abuse, otherwise

known as the Market Abuse Regulation, or “MAR”. It

requires the Board of the Company to adopt certain

processes to ensure that, inter alia, price sensitive

information must be, subject to certain exemptions,

promptly disclosed to the public via a regulatory news

service in order to ensure an orderly market in the

Company’s shares.

The Company mitigates any such failure by delegating

key operational tasks to specialist third-party service

providers combined with close oversight and monitoring

through the Audit Committee.

The Investment Manager monitors investment

movements, the level and type of forecast income and

expenditure and the amount of proposed dividends to

ensure that the provisions of Chapter 4 of Part 24 of the

Corporation Tax Act 2010 are not breached. The results

are reported to the Board at each meeting.

Compliance with the accounting rules affecting

investment trusts is also carefully and regularly

monitored.

The Company Secretary, Investment Manager and the

Company’s professional advisers provide regular

reports to the Board in respect of compliance with all

applicable rules and regulations. The Board and the

Investment Manager also monitor changes in

government policy and legislation which may have an

impact on the Company.

The risk to the Company of failure to comply with MAR

is mitigated by close Board oversight and monitoring

through the compliance function and controls

monitoring team at the Investment Manager.

Sustainability risk

Sustainability risk means exposure to an environmental,

social or governance (“ESG”) event or condition that, if

it occurs, could cause an actual or a potential material

negative impact on the value of an investment.

Please refer to the ‘Sustainability risk and investment

process’ section on pages 35 to 36 for further details.

Risk management (continued)

Strategic review

24 Annual Report and audited Financial Statements • December 202124

Strategic report • Governance • Financial • Additional information

Strategic review

In assessing the viability of the Company over this

five-year period, the Directors have considered the

current position of the Company and a number of

factors. Most importantly, they have weighed the

characteristics of a closed-ended fund and the

investment policy of the Company against the risks the

Company faces as set out in this Strategic Report. The

Directors have evaluated scenarios of current and

possible future circumstances including the uncertainty

of the potential duration of the COVID-19 pandemic, its

impact on the global economy and the prospects for the

Company’s portfolio.

The Directors have assumed that neither the closed-

ended structure of the Company, its investment policy

nor the risks it faces are likely to change substantially, or

for the worse with respect to the viability of the

Company, over the five-year period they have selected

for the purposes of this viability statement. The Directors

have also assumed that the Company will continue to

Viability statement

Ahead of the Company’s fifth annual general meeting in

2024, the Board will formulate and submit to

Shareholders proposals (which may constitute a tender

offer or other method of distribution) to provide

Shareholders with an opportunity to realise the value of

their Ordinary Shares at NAV per Ordinary Share less

costs. In all circumstances, the Board will seek to

balance the interests of both continuing Shareholders

and those electing to realise their investment with a view

to minimising any reduction in the overall size of the

Company.

The Directors remain confident in the Company’s ability

to achieve its investment objective. On this basis and

notwithstanding the value realisation opportunity in

2024, the Directors have elected to review the viability of

the Company for a five-year period. This is linked to the

weighted average life of the Debt Instruments in the

Company’s portfolio.

Key Risk (continued) Key Mitigants and Controls (continued)

Russia-Ukraine risk

Whilst stock selection decisions taken by the

Investment Manager have always required careful

consideration of geopolitical risks, the severity and

wide reaching economic implications of Russia’s

invasion of Ukraine, warrant focus on a stand-alone

basis. Economic sanctions as well as the disruption to

business activity in the region are set to create both

first and second order effects across a wide range of

sectors, particularly in mainland Europe. The

inflationary effects of rising commodity prices also

threaten to impact the operations, productivity and

profitability of businesses whilst restricting wider

economic growth. The Company’s portfolio has no

direct investment exposure in Russia, Ukraine or

Belarus.

●

Sanction Controls – All private assets undergo

pre-trade screening by the financial crime team,

ensuring that all Company investments adhere to

relevant financial crime compliance rules, including

anti-money laundering and international sanction

rules. Additionally, for our publicly traded

investments, pre-trade restrictions are applied into

our trading systems to promptly reflect any

international sanction announcements.

●

Credit Research – The Investment Manager’s

in-house credit research team has conducted

analysis to identify investments that may have

exposure to Russia, Ukraine or Belarus. Whilst the

Company’s portfolio has no direct investment

exposure in these countries, further analysis has

identified some investments that may be affected,

although the look-through exposure at portfolio

level is immaterial.

●

The Company’s investment strategy does not lead

it to invest directly in Emerging Market assets.

25Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

As a consequence, the Directors believe that the

Company continues to be well placed to manage its

business risks successfully. In assessing the going

concern basis of accounting, the Directors have also

considered the COVID-19 pandemic and the impact this

may have on the Company’s investments and the

Company’s NAV. The Directors have a reasonable

expectation that the Company has adequate resources

to continue in operational existence for the foreseeable

future and for a period of 12 months from the date of the

approval of this Annual Report. Accordingly, they

continue to adopt the going concern basis in preparing

this Annual Report and Accounts.

Investment management and

third-party service provider

arrangements

The Board has overall responsibility for the Company’s

activities, including the review of investment activity and

performance and the control and supervision of all

suppliers of services to the Company, including the

Investment Manager. It is also responsible for the

determination of the Company’s investment policy and

strategy and the Company’s system of internal and

financial controls, including ensuring that commercial

risks and financing needs are properly considered and

that the obligations of a public limited company are

adhered to.

To assist the Board in the operations of the Company,

arrangements have been put in place to delegate

authority for the performance of day-to-day operations

of the Company to the Investment Manager and other

third-party service providers. The Board has appointed

the Investment Manager to manage the Company’s

investment portfolio within guidelines set by the Board.

The Investment Manager is in frequent contact with the

Board and supplies the Directors with regular updates

on the Company’s activities and detailed reports at each

Board meeting.

maintain a sufficient level of liquidity and to generate

substantial income for the foreseeable future in order to

meet its liabilities. As the Directors are ultimately

responsible for ensuring that the investment policy of

the Company is followed by the Investment Manager,

they are confident in making these assumptions about

the future of the Company.

The Company is an investment trust, not a trading

company, and it invests in a diversified portfolio. As a

closed-ended fund, it is not subject to redemptions by

Shareholders other than, potentially, the 2024 value

realisation opportunity.

The Company’s portfolio also generates substantial

levels of income to meet its expenses, which are largely

fixed overheads that represent a small percentage of its

net assets. Based on their assessment of the nature of

the Company, its investment policy and financial

resources, the Directors have a reasonable expectation

that the Company will be able to continue in operation

and to meet its liabilities as they fall due over the next

five years.

Going concern statement

The activities of the Company, together with the factors

likely to affect its future development, including its

performance, financial position, cash flows and liquidity

position, are described in the Strategic Report.

In addition, the Company’s policies and processes for

managing its key financial risks are described in note 13

on pages 97 to 101.

As at 31 December 2021, the Company’s total assets less

current liabilities were £143.76 million (31 December

2020: £146.63 million and total current assets less

current liabilities were £4.3 million (31 December 2020:

£6.5 million). The Directors have reviewed the financial

projections of the Company from the date of this report,

which shows that the Company will be able to generate

sufficient cash flows in order to meet its liabilities as

they fall due.

Strategic review

Viability statement (continued)

26 Annual Report and audited Financial Statements • December 202126

Strategic report • Governance • Financial • Additional information

Strategic review

Investment Manager

The Company has appointed M&G Alternatives

Investment Management Limited (the “Investment

Manager”) to act as the Company’s Alternative

Investment Fund Manager (AIFM) for the purposes of

the AIFM Directive and, accordingly, the Investment

Manager is responsible for providing discretionary

portfolio management and risk management services to

the Company.

The Investment Management Agreement dated

26September 2018 is for an initial term of five years

from 14 November 2018 and thereafter subject to

termination on not less than six months’ written notice

by either party. The Investment Management Agreement

can be terminated at any time in the event of the

insolvency of the Company or the Investment Manager

or in the event that the Investment Manager ceases to

be authorised and regulated by the FCA (if required to

be so authorised and regulated to continue to carry out

its duties under the Investment Management

Agreement).

The Investment Manager is entitled to receive from the

Company an investment management fee, which is

calculated and paid quarterly in arrears at an annual rate

of 0.7% per annum of the prevailing published NAV. The

investment management fee was increased from 0.5%

to 0.7% on 1st April 2021 to reflect the Board’s

consensus that the portfolio was appropriately

positioned to meet the Company’s medium term

annualised dividend target of LIBOR plus 4%, as outlined

in the Investment Management Agreement.

Where the Company invests in a collective investment

vehicle that is managed or advised by an M&G entity,

such as the M&G European Loan Fund, the Investment

Manager reduces its investment management fee by the

amount of any equivalent management fee that is

charged to such collective investment vehicle or such

entity rebates its management fee such that the

Investment Manager ensures the Company is not

charged twice. The above arrangement does not apply

to any other fees or expenses charged to the Company

or any such entity in which it invests.

The Investment Manager is also entitled to be paid half

of any arrangement fee charged by the Company to the

issuer of a Debt Instrument in which the Company

invests. The balance of any arrangement fee is retained

by the Company.

Continuing appointment of Investment

Manager

As at the date of this Report, the Directors are of the

opinion that the Investment Manager has executed the

Company’s investment strategy according to the Board’s

expectations. Accordingly, the Directors believe that the

continuing appointment of M&G Alternatives Investment

Management Limited as the Investment Manager of the

Company, on the terms agreed, is in the best interests of

the Company and its Shareholders as a whole.

Administrator

Under an Administration Agreement dated

26September 2018, the Company has appointed State

Street Bank and Trust Company to act as administrator.

The administrator provides day-to-day administration of

the Company and is also responsible for the Company’s

general administrative functions, including the

calculation and publication of the NAV and maintenance

of the Company’s accounting and statutory records.

The Administration Agreement is terminable, inter alia,

upon not less than six months’ written notice. The

Administration Agreement is also terminable

immediately upon the occurrence of certain standard

events, including the insolvency of the Company or the

Administrator or a party committing a material breach of

the Administration Agreement (where such breach has

not been remedied within 30 calendar days of written

notice being given).

Investment management and

third-party service provider

arrangements (continued)

27Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Depositary

Under a Depositary Agreement dated 26 September

2018, the Company has also appointed State Street

Trustees Limited as depositary to provide depositary

services to the Company, which will include safekeeping

of the assets of the Company. The Depositary is

permitted to delegate (and authorise its delegates to

sub-delegate) the safekeeping of the assets of the

Company.

The Administrator and Depositary are entitled to a

combined fee (the “State Street Fee”). The State Street

Fee shall be up to 0.08% of the NAV per annum. The fee

is subject to a minimum rate, whereby if the NAV is less

than £250 million, the fee will be calculated as if the NAV

were £250 million. The State Street Fee is calculated

monthly and payable monthly in arrears.

Custodian

The Depositary has delegated safekeeping duties as set

out in the AIFM Directive and the FCA Handbook to

State Street Bank & Trust Company, whom it has

appointed as global sub-custodian.

Registrar

The Company entered into a Registrar Agreement dated

26 September 2018 with Link Group to provide registrar

services in relation to the transfer and settlement of

shares. Under the agreement, the Registrar is entitled to

a fee calculated on the basis of the number of

Shareholders and the number of transfers processed

(exclusive of any VAT). In addition, the Registrar is

entitled to certain other fees for ad hoc services

rendered from time to time. The Registrar Agreement

was originally for an initial period of one year from the

date of Initial Admission and thereafter automatically

renews for successive periods of 12 months unless or

until terminated by either party (a) at the end of the initial

period, provided written notice is given to the other

party at least 6 months prior to the end of the initial

period or (b) at the end of any successive 12-month

period, provided written notice is given to the other

party at least six months prior to the end of such

successive 12-month period.

In April 2021 the Company entered into a new Registrar

Agreement with Link Group to provide registrar services

in relation to the transfer and settlement of shares.

Effective from 1 May 2021, under the terms of the

agreement a fixed annual fee of £13,000 (exclusive of

VAT) will be payable. The Registrar Agreement is for a

period of three years until 30 April 2024 when the fee

will increase in line with the Retail Prices Index (RPI).

Company Secretary

The Company entered into a Company Secretarial

Services Agreement dated 26 September 2018

appointing Link Company Matters Limited (“Company

Matters”) as Company Secretary to provide the company

secretarial functions required by the Companies Act.

Following the initial period of 12 months the Company

Secretarial Agreement automatically renewed, and

continues to review, for successive periods of 12 months

unless or until terminated by either party at the end of

any successive 12-month period, provided written notice

is given to the other party at least six months prior to the

end of such successive 12-month period.

Pursuant to the terms of the Company Secretarial

Services Agreement, Company Matters have applied an

annual inflationary increase at the rate of the Retail

Prices Index prevailing at the time. With effect from

1 June 2021, the aggregate fee payable to Company

Matters was £65,780 (exclusive of VAT).

Strategic review

Investment management and

third-party service provider

arrangements (continued)

28 Annual Report and audited Financial Statements • December 202128

Strategic report • Governance • Financial • Additional information

Strategic review

Section 172 Statement: promoting

the success of the Company

Overview

The Directors’ overarching duty is to act in good faith

and in a way that is the most likely to promote the

success of the Company as set out in Section 172 of the

Companies Act 2006. In doing so, Directors must take

into consideration the interests of the various

stakeholders of the Company and the impact the

Company has on the community and the environment;

take a long-term view on consequences of the decisions

they make; and aim to maintain a reputation for high

standards of business conduct and fair treatment

between the members of the Company.

Fulfilling this duty naturally supports the Company in

achieving its investment objective and helps to ensure

that all decisions are made in a responsible and

sustainable way. In accordance with the requirements of

the Companies (Miscellaneous Reporting) Regulations

2018, the Company explains how the Directors have

discharged their duty under Section 172 below.

To ensure that the Directors are aware of and

understand their duties, they are provided with the

relevant information as part of their induction, as well as

receiving regular and ongoing updates and training on

the relevant matters. They also have continued access to

the advice and services of the Company Secretary and,

when deemed necessary, the Directors can seek

independent professional advice.

The schedule of Matters Reserved for the Board, as well

as the Terms of Reference of its committees are

reviewed on at least an annual basis and further

describe the Directors’ responsibilities and obligations,

and include any statutory and regulatory duties. The

Audit Committee has the responsibility for the ongoing

review of the Company’s risk management systems and

internal controls and, to the extent that they are

applicable, risks related to the matters set out in Section

172 are included in the Company’s risk register and are

subject to periodic and regular reviews and monitoring.

Decision-making

The Board considers the impact that any material

decision will have on all relevant stakeholders to ensure

that it is making a decision that promotes the long-term

success of the Company, whether this be in relation to

dividends, new investment opportunities, potential

future fundraisings etc.

Stakeholders

The Board seeks to understand the needs and priorities

of the Company’s stakeholders and these are taken into

account during all its discussions and as part of its

decision-making. The Board has considered which

parties should be deemed to be stakeholders of the

Company. As the Company is an externally managed

investment company and does not have any employees

or customers, its key stakeholders comprise its

Shareholders, regulators (including service party

regulators) and service providers. The section on the

following page discusses why these stakeholders are

considered of importance to the Company and the

actions taken to ensure that their interests are taken into

account.

29Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Strategic review

Importance Board engagement

Shareholders

Continued Shareholder support and

engagement are critical to the continued

existence of the Company and the

successful delivery of its long-term

strategy.

Before the Company’s fifth Annual

General Meeting in 2024, the Board will

formulate and submit to Shareholders

proposals (which may constitute a tender

offer or other method of distribution) to

provide Shareholders with an

opportunity to realise the value of their

Ordinary Shares at the then prevailing

NAV per Ordinary Share less costs. In all

circumstances, the Board will seek to

balance the interests of both continuing

Shareholders and those electing to

realise their investment.

The Company has over 200 Shareholders, including institutional and

retail investors. The Board is committed to maintaining open channels

of communication and to engage with Shareholders in a manner they

find most meaningful in order to gain an understanding of their

views. These include the channels below.

AGM: The Company welcomes and encourages attendance and

participation from Shareholders at its AGMs and when possible,

Shareholders will have the opportunity to meet the Directors and the

Investment Manager and to address questions to them directly. The

Company values any feedback and questions it may receive from

Shareholders ahead of and during the AGM and will take action or

make changes, when and as appropriate.

Publications: the Annual Report and Half Year Report are made

available on the Company’s website and the Annual Report is

circulated to Shareholders. This information is supplemented by the

monthly calculation and publication of the NAV per share which is

announced via the regulatory news service of the London Stock

Exchange. In addition, a monthly factsheet and/or a quarterly

newsletter is published by the Investment Manager on the

Company’s website. Feedback and/or questions that the Company

receives from Shareholders help the Company evolve its reporting,

aiming to render the reports and updates transparent and

understandable.

Shareholder meetings: unlike trading companies, one-to-one

Shareholder meetings usually take the form of a meeting with the

Investment Manager rather than members of the Board. Feedback

from all substantive meetings between the Investment Manager and

Shareholders is shared with the Board. During the year there were 24

meetings with Shareholders. The Chairman, the Chairman of the

Audit Committee or other members of the Board are available to

meet with Shareholders to understand their views on governance

and the Company’s performance where they wish to do so. With

assistance from the Investment Manager and Broker during the year,

the Chairman wrote to Shareholders, offering to meet with

Shareholders or discuss any questions or observations they may

have had.

Section 172 Statement: promoting the success of the Company (continued)

30 Annual Report and audited Financial Statements • December 202130

Strategic report • Governance • Financial • Additional information

Strategic review

Importance (continued) Board engagement (continued)

Shareholder concerns: in the event that Shareholders wish to raise

issues or concerns with the Board, they are welcome to do so at any

time by writing to the Chairman at the registered office. The Senior

Independent Director is also available as an intermediary to

Shareholders.

Investor relations updates: at every Board meeting, the Directors

receive updates from the Company’s broker on the share trading

activity, share price performance and any Shareholders’ feedback, as

well as an update from the Investment Manager.

Other stakeholders

The Investment Manager

Holding the Company’s shares offers

investors a publicly traded investment

vehicle through which they can obtain

exposure to the Company’s diversified

portfolio. The Investment Manager’s

performance is critical for the Company

to successfully deliver its investment

strategy and meet its objective.

Maintaining a close and constructive working relationship with the

Investment Manager is crucial, as the Board and the Investment

Manager both aim to continue to achieve consistent, long-term returns

in line with the Company’s investment objective. Important

components in the collaboration with the Investment Manager,

representative of the Company’s culture include those listed below.

●

Encouraging open, honest and collaborative discussions at all

levels, allowing time and space for original and innovative thinking

●

Ensuring that the impact on the Investment Manager is fully

considered and understood before any business decision is made

●

Ensuring that any potential conflicts of interest are avoided or

managed effectively

The Board holds detailed and intensive discussions with the

Investment Manager on all key strategic and operational topics on an

ongoing basis. In addition to a monthly call there have been numerous

meetings on a range of topics including the zero-discount policy.

Beyond this, there are regular discussions by email and calls on various

operational matters.

Section 172 Statement: promoting the success of the Company (continued)

31Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Importance (continued) Board engagement (continued)

The Administrator, the Company

Secretary, the Registrar, the Depositary,

the Custodian and the Broker

In order to function as an investment

trust with a listing on the premium

segment of the official list of the FCA and

trade on the London Stock Exchange’s

(LSE) main market for listed securities,

the Company relies on a diverse range of

reputable advisors for support in

meeting all relevant obligations.

The Board maintains regular contact with its key external providers

and receives regular reporting from them through the Board and

committee meetings, as well as outside of the regular meeting cycle.

Their advice, as well as their needs and views are routinely taken into

account. The Management Engagement Committee formally assesses

their performance, fees and continuing appointment at least annually

to ensure that the key service providers continue to function at an

acceptable level and are appropriately remunerated to deliver the

expected level of service. The Audit Committee reviews and evaluates

the control environments in place at each service provider and

assesses the effectiveness through review of the annual assurance

reports from each organisation. This reporting is supplemented by the

view of the Investment Manager’s Supplier Management Team

regarding the control environments in operation at the providers.

Interactions take place at least monthly including the approval of the

NAV, review of forecasts and management accounts.

Regulators (including third-party

service providers’ regulators)

The Company can only operate with the

approval of its regulators and its third-

party service providers’ regulators who

have a legitimate interest in how the

Company operates in the market and

how it treats its Shareholders.

The Company regularly considers how it meets various regulatory and

statutory obligations and follows voluntary and best practice guidance.

It also gives full consideration to how any governance decisions it

makes can have an impact on its stakeholders, both in the shorter and

in the longer term. The Company’s service providers provide regular

reporting to the Company in respect of their interaction with their own

respective regulators.

Lenders

Availability of funding and liquidity are

crucial to the Company’s ability to take

advantage of investment opportunities

as they arise.

Considering how important the availability of funding is, the Company

aims to demonstrate to lenders that it is a well-managed business, and

in particular, that the Board focuses regularly and carefully on the

management of risk. The Board has worked with the Investment

Manager to agree the terms of the revolving credit facility.

Strategic review

Section 172 Statement: promoting the success of the Company (continued)

32 Annual Report and audited Financial Statements • December 202132

Strategic report • Governance • Financial • Additional information

Examples of the Board’s principal decisions taken during the year, and how the Board fulfilled its duties under

Section172 of the Act, and the related engagement activities are set out below.

Principal decision Long-term impact Stakeholder considerations and engagement

The Board

announced its

intention to

implement a “zero

discount” policy.

Through the implementation of

this policy, the Company will seek

to ensure that the shares trade

close to NAV where possible.

The Board had concerns regarding the Company’s

discount to NAV, and in April 2021 announced the

decision to implement a “zero discount” policy to

manage the discount, or premium, to NAV. The Board

believes that it is important for Shareholders to be able

to benefit appropriately from the Company’s

investment objective which is to generate a regular and

attractive level of income with low asset value volatility.

The Company therefore seeks to ensure that the

Ordinary Shares trade close to NAV in normal market

conditions through a combination of Ordinary Share

buybacks and the issue of new Ordinary Shares, or

resale of Ordinary Shares held in treasury, where

demand exceeds supply.

Strategic review

Section 172 Statement: promoting the success of the Company (continued)

Importance (continued) Board engagement (continued)

Institutional investors and proxy advisers

The evolving practice and support of the

major institutional investors and proxy

adviser agencies are important to the

Directors, as the Company aims to

maintain its reputation for high standards

of corporate governance, which

contributes to its long-term sustainable

success.

Recognising the principles of stewardship, as promoted by the UK

Stewardship Code, the Board welcomes engagement with all of its

investors. The Board recognises that the views, questions from, and

recommendations of many institutional investors and proxy adviser

agencies provide a valuable feedback mechanism and play a part in

highlighting Shareholders’ evolving expectations and concerns. These

are important factors for the Board in delivering the Company’s

strategy.

The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed

on a regular basis at Board meetings to ensure that they remain effective.

33Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

that include those relating to Directors’ dealings in the

Company’s shares, conflicts of interest, bribery and tax

evasion.

The Board seeks to appoint appropriate third-party

service providers and evaluates their services on a

regular basis as described on pages 25 to 27. Their

ongoing appointments are not only reflective of their

performance by reference to their contractual and

service level obligations, but also take into account the

extent to which their individual corporate cultures align

with those of the Company. The Board considers the

culture of the Investment Manager and other

stakeholders, including their policies, practices and

behaviour, through regular reporting from these

stakeholders and in particular during the annual review

of the performance and continuing appointment of all

service providers.

Culture

The Directors are of the opinion that establishing and

maintaining a healthy corporate culture amongst the

Board and in its interaction with the Investment

Manager, Shareholders and other stakeholders will

support the delivery of its purpose, values and strategy.

The Board seeks to promote a culture of openness,

transparency and integrity through ongoing dialogue

and engagement with its stakeholders, principally the

Investment Manager.

The Board strives to ensure that its culture is in line with

the Company’s purpose, values and strategy and will

consider this through its annual evaluation processes.

Further information relating to the Company’s values is

provided in the Corporate Governance Statement on

page 45. There are also policies and procedures in place

to assist with maintaining a culture of good governance

Strategic review

Importance (continued) Board engagement (continued)

The Company

renewed the

agreement for a

revolving credit

facility of £25

million with State

Street Bank

International GmbH.

In line with its approach to balance

sheet management, the Company

has renewed its agreement for a

one-year multicurrency revolving

credit facility of £25 million.

The Board regularly reviews the Company’s cash

position and commitments taking into consideration

the impact on Shareholders. The facility will be used to

support the long-term growth of the Company and in

particular to fund investments. The facility increases

the Company’s net liquid resources available for future

deployment, including dividend payments to

Shareholders and any repurchase of the Company’s

issued share capital. The terms of the credit facility

with State Street Bank International GmbH contain

covenants with which the Company is regularly

required to confirm to State Street Bank International

GmbH that it has remained compliant.

New appointment

to the Board.

Continuing to develop and evolve

the Board so that it contains an

appropriate mix of skills, diversity

and experience is important to

promote the long-term success of

the Company.

During the year, the Nomination Committee carried out

a successful search process for a new non-executive

director, resulting in the appointment of Jane

Routledge as an Independent Non-Executive Director

on 25 October 2021. The Board agreed this

appointment would promote the long-term interests of

the Company and further enhance the range of skills

and experience of the Board members.

Section 172 Statement: promoting the success of the Company (continued)

34 Annual Report and audited Financial Statements • December 202134

Strategic report • Governance • Financial • Additional information

Employees, human rights and

social and community issues

The Board recognises certain requirements under the

Companies Act 2006 to detail information about human

rights, employees and community issues, including

information about any policies it has in relation to these

matters and the effectiveness of these policies. These

requirements are not in practice applicable to the

Company as it has no employees, all the Directors are

non-executive and it has outsourced all operational

functions to third-party service providers. The Company

has therefore not reported further in respect of these

provisions.

Under listing rule 15.4.29(R), the Company, as a closed-

ended investment fund, is exempt from complying with

the Task Force on Climate-related Financial Disclosures.

Board diversity

As at 31 December 2021, the Board of Directors of the

Company comprised two male directors and two female

directors. The Board is an enthusiastic supporter of

diversity in its composition, recognising that it brings

additional benefits to the Company and its stakeholders

beyond specialist skills, knowledge, experience,

backgrounds and perspectives. As a result, the Board’s

views on diversity principles are aligned with those

expressed in the Hampton-Alexander Review regarding

the proportion of women on boards and also the Parker

Review about ethnic representation on boards, amongst

other published commentaries. It is the intention of the

Board to work towards enhancement of its diversity

alongside the maintenance of key skillsets as the

Company grows its size over the medium term, and

developments in this area will be reported to

stakeholders periodically.

Strategic review

It is the Board’s policy that any future Board

appointments will be made on the basis of merit against

the specific criteria for the role being offered and there

will be no discrimination on the grounds of gender, race,

ethnic or national origins, religion, sexual orientation, age

or disabilities.

Environmental, social and

governance (ESG) issues

The Company has no employees, property or activities

other than investments, so its direct environmental

impact is minimal. In carrying out its activities and in its

relationships with service providers and their

employees, the Company aims to conduct itself

responsibly, ethically and fairly.

The day-to-day management of the Company’s investing

activities is delegated to the Investment Manager.

The Investment Manager’s ESG investment principles,

detailed below are used to inform and guide all

investments made as an asset manager.

1. For all investments, we take into consideration

environmental, social and governance (“ESG”)

factors that have the potential to have a material

financial impact. In addition, for ESG-related funds/

mandates we take into consideration ESG

strategies as necessary to deliver the specific

objectives as defined in the fund documentation/

investment mandate.

For all investments, we believe consideration of the

implications for society and the environment to be

part of investment stewardship and in line with our

fiduciary duty to our customer.

3. We take a long-term approach, keeping in mind

customer time horizons, the urgency of individual

ESG issues and delivery of the firm’s ESG priorities

and commitments.

4. We identify ESG themes and risk factors and

incorporate them into our general investment and

risk management processes.

35Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Strategic review

5. We are active investors and believe in active

management, preferring stock selection,

engagement and voting (where relevant) over

exclusion. Our aim is to invest in the solution not the

problem, therefore as a responsible investor we

seek to support companies transitioning towards

the creation of a more sustainable economy.

6. As an investor we are politically neutral, we do not

engage in political contributions, nor do we have a

direct affiliation with any political party in any

country. We are committed to working with our

stakeholders, including our investee companies, to

help fight slavery, human trafficking, child labour or

any other abuse of human rights. Therefore, we

take into consideration politics where they impact

human rights, the rule of law, fairness and equality,

and where local and/or geo-political risk impacts

the risk return profile of an investment.

Where an investment, either by the nature of its

business or by the nature of the investee company’s

activities or behaviours, breaches our core values,

we will assess the investment under our exclusion

process. Where we believe engagement and voting

has been or will be ineffective in influencing

positive change, we may exclude the company from

our portfolios.

8. We review our ESG approach regularly in order to

align with scientific and technological

improvements, changes in the global economy, and

the evolution of good practice, sustainability and

ethics.

9. We aspire to produce research of the highest

quality for our investment teams, generating market

leading proprietary research and data, integrating

ESG into the investment process across all asset

classes.

10. We recognise the complexity in identifying and

addressing the drivers of ESG issues, given the

interdependence of ESG factors, some of which are

inherently subjective and where available data may

not be of high quality. In such cases we adopt a

pragmatic approach, balancing the implications for

the economy, society and the environment where

available information is not objective or reliable.

We are providers of capital to investee companies,

and are not responsible for the day-to-day

management of those companies. However, we are

cognisant of the need to encourage good corporate

governance and sustainable business practices

and, if necessary, vote for changes to board

composition where this is not the case.

The full ESG Investment Policy document is available at

www.mandgplc.com/our-business/mandg-investments/

responsible-investing-at-mandg-investments

As a signatory member to the PRI, the Investment

Manager is committed to providing detailed ESG

transparency to market participants in relation to its

business activities. The most recent transparency report

is available at www.unpri.org/signatory-directory/

mandg-investments/1483.article

Given its commitment to responsible investment, the

Investment Manager has allocated significant human

and financial capital to the implementation of the PRI

principles.

Sustainability risk and investment

process

The Board believes that sustainability risk can have a

material impact on long-term investment outcomes.

Sustainability risk means exposure to an environmental,

social or governance (“ESG”) event or condition that, if it

occurs, could cause an actual or a potential material

negative impact on the value of an investment. The

Company’s goal is to generate the best possible risk

adjusted returns for investors, taking into account all

Environmental, social and

governance (ESG) issues

(continued)

36 Annual Report and audited Financial Statements • December 202136

Strategic report • Governance • Financial • Additional information

●

Governance aspects, which include, but are not

limited to, board composition and effectiveness,

management incentives, management quality,

ethnic and gender diversity, and stakeholder

alignment.

The potential impacts of sustainability risk events on the

Company’s portfolio include degradation of issuer

cashflow and consequent inability to meet debt

servicing obligations, and inability to continue to actively

and competitively participate in its chosen markets.

Sustainability risks may also affect the credit quality of

an issuer. The Company has exposure to higher-yielding

private debt arrangements, which may include debt

securities of smaller companies, some of which may be

privately owned, and thus may be less transparent in

respect of environmental, social and governance and

sustainability-related disclosures.

In order to ensure that sustainability risks are properly

considered within the investment decision making and

risk monitoring processes, to the extent that they

represent potential or actual material risks and/or

opportunities for maximising long-term risk-adjusted

returns, the Investment Manager follows a series of

environmental, social and governance investment

principles described in the Investment Manager’s ESG

Principles Statement, which can be accessed via the

Investment Manager’s website.

At its quarterly meeting held on 1 February 2022, the

Company resolved to approve the implementation of

M&G plc’s Thermal Coal Policy. This will come into effect

from 27 April 2022.

M&G plc’s Thermal Coal Policy seeks to exclude

companies that are either unable or unwilling to

transition away from thermal coal within the necessary

timelines to keep the earth’s average warming within the

targets set by the Paris Agreement.

The portfolio of the Company does not currently have

any assets that are failing the policy and require

divestment.

Strategic review

factors that influence investment performance, and

therefore ESG issues are incorporated into investment

decisions wherever they have a potentially meaningful

impact on risk or return.

ESG factors themselves are, generally, non-financial

considerations that may impact the risk, volatility and

long-term return of individual investments, as well as

markets as a whole. Individual investments can have

both a positive and negative impact on society and the

environment.

In certain contexts, ESG factors may be referred to as

sustainability factors. Due to the nature of its stated

investment strategy, the Company does not seek to

actively promote ESG factors and does not seek to

maximise portfolio alignment with ESG factors, but it

nevertheless remains exposed to sustainability risks.

Impacts on the Company following the occurrence of a

sustainability risk event may be numerous and will vary

depending on the specific investment risk, geographical

region and asset class. In general, where a sustainability

risk event occurs in respect of an individual asset, there

is the potential for a negative impact on, or an entire loss

of, its value.

The following types of sustainability risks have the

potential to materially impact the returns of the

Company over time:

●

Environmental factors, which include, but are not

limited to, the ability of investee companies to

mitigate and adapt to climate change, the potential

for higher carbon prices, exposure to increasing

water scarcity and potential for higher water prices,

waste management challenges, and impact on

global and local ecosystems.

●

Social risks, which include, but are not limited to,

product safety, supply chain management and

labour standards, health and safety and human

rights, employee welfare, data & privacy concerns

and increasing technological regulation.

Sustainability risk and investment

process (continued)

37Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Greenhouse gas emissions

The Company has no greenhouse gas emissions to

report from its operations, nor does it have responsibility

for any other emission-producing sources under the

Companies Act 2006 (Strategic Report and Directors’

Reports) Regulations 2013.

Modern slavery

The Company, as an investment vehicle, does not

provide goods or services in the normal course of

business and does not have customers. The Directors

consider that the Company is thus not required to make

a slavery or human trafficking statement under the

Modern Slavery Act 2015. The Board considers the

Company’s supply chains, dealing predominantly with

professional advisers and service providers in the

financial services industry, to be low risk in relation to

this matter.

Approval

The Strategic Report was approved by the Board at its

meeting on 23 March 2022. The Chairman’s Statement

together with the Investment Manager’s Report form

part of this Strategic Report.

David Simpson

Chairman

23 March 2022

Strategic review

38 Annual Report and audited Financial Statements • December 202138

Strategic report • Governance • Financial • Additional information

Directors

David Simpson, Chairman. Appointed as a non-

executive Director on 18 September 2018. David

Simpson is a qualified solicitor and was a partner at

KPMG for 15 years until 2013, culminating as global head

of M&A. Before that he spent 15 years in investment

banking, latterly at Barclays de Zoete Wedd Ltd. He is

chairman of Ecofin Global Utilities and Infrastructure

Trust plc, a non-executive director of Aberdeen New

India Investment Trust PLC, a non-executive Director of

the British Geological Survey and a non-executive

Director of ITC Limited, a major listed Indian company.

David graduated from the University of Cambridge with

a degree in Economics and Law.

Richard Boléat FCA, Audit Committee Chairman and

Senior Independent Director. Appointed as a non-

executive Director on 18 September 2018. Richard

Boléat is a Fellow of the Institute of Chartered

Accountants in England & Wales, having trained with

Coopers & Lybrand in Jersey and the United Kingdom.

After qualifying in 1986, he subsequently worked in the

Middle East, Africa and the UK for a number of

commercial and financial services groups before

returning to Jersey in 1991. He was formerly a Principal

of Channel House Financial Services Group from 1996

until its acquisition by Capita Group plc (‘Capita’) in

September 2005. Richard led Capita’s financial services

client practice in Jersey until September 2007, when he

left to establish Governance Partners, L.P., an

independent corporate governance practice. Alongside

his roles at the Company, he currently acts as Chairman

of CVC Credit Partners European Opportunities Limited

and SME Credit Realisation Fund Limited and is a

non-executive Director of Third Point Investors Limited,

all of which are listed on the London Stock Exchange. He

is regulated in his personal capacity by the Jersey

Financial Services Commission.

Barbara Powley, Appointed as a non-executive Director

on 18 September 2018. Barbara Powley is a chartered

accountant with over 30 years’ experience in the

investment trust industry. Prior to her retirement in

March 2018 she was a director in BlackRock’s closed-

ended funds team from 2005 with responsibility for the

oversight and administration of BlackRock’s stable of

investment trusts. From 1996 to 2005, she had a similar

role at Fidelity. Barbara graduated from the University

of York with a degree in Mathematics and Economics.

On 18 November 2020, Barbara was appointed as

non-executive Director of Montanaro UK Smaller

Companies Investment Trust plc. She brings to the

Board her extensive knowledge of the investment trust

sector and its regulatory requirements.

Jane Routledge, Appointed as a non-executive Director

on 25 October 2021. Jane Routledge has spent 30 years

in marketing & communications roles in the investment

management sector, communicating with pension fund,

intermediary and private investor audiences. She has

worked in a number of investment management

businesses, including Schroders, Invesco and Hermes

Fund Managers. Most recently, she spent 8 years to

December 2019 as a partner in Seven Investment

Management, building and leading its marketing

function across all channels to market. She has years of

experience in strategic and operational brand

development, lead acquisition, and client and employee

engagement as well as extensive experience of creating

and leading client-facing functions in fast growing

organisations.

Jane is currently a non-executive director of Cumbria

Education Trust, a multi academy trust which runs 12

schools across the northwest of England. She graduated

from the University of Cambridge with a degree in

Modern & Medieval Languages, and has a Masters

degree in Organisational Psychology from the University

of London.

3939Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Investment trust status

The Company has received approval from HM Revenue

& Customs (HMRC) as an authorised investment trust

under Sections 1158 and 1159 of the Corporation Tax Act

2010, subject to the Company continuing to meet the

eligibility conditions. The Directors are of the opinion

that the Company has conducted its affairs in

compliance with such approval and intends to continue

doing so.

Current share capital

As at 31 December 2021 there were 141,723,022

Ordinary Shares in issue, excluding 3,022,749 Ordinary

Shares held in treasury.

At the date of this report, there are 140,373,022 Ordinary

Shares in issue, excluding 4,372,749 held in treasury. At

General Meetings of the Company, Shareholders are

entitled to one vote on a show of hands and, on a poll, to

one vote for every share held.

The total voting rights of the Company as at

31 December 2021 were 141,723,022.

There are no restrictions concerning the transfer of

securities in the Company or on voting rights; no special

rights with regard to control attached to securities and

no agreements between holders of securities regarding

their transfer known to the Company.

Change of Control

There are no agreements to which the Company is party

that might be affected by a change of control of the

Company except for the agreement in relation to the

Company’s credit facility. The Company entered into a

£25 million Facility Agreement with State Street Bank

International GmbH, expiring on 17 October 2022. This

agreement could alter or terminate on the change of

control of the Company. Further information is disclosed

in note 6 to the financial statements.

Directors’ report

The Directors are pleased to present the Annual Report

and audited Financial Statements for the year ended

31 December 2021.

In accordance with the Companies Act 2006

(as amended), the Listing Rules and the Disclosure

Guidance and Transparency Rules, the Corporate

Governance Statement, Directors’ Remuneration Report,

Report from the Audit Committee and the Statement of

Directors’ Responsibilities should be read in conjunction

with one another and the Strategic Report. As permitted

by legislation, some of the matters normally included in

the Directors’ Report have instead been included in the

Strategic Report, as the Board considers them to be of

strategic importance. Therefore, a review of the

business of the Company, recent events and outlook can

be found on pages 7 to 9 and information regarding

environmental, social and governance issues can be

found on pages 34 to 35.

Directors

The Directors in office during the year and at the date of

this report, with the exception of Mark Hutchinson who

retired during the year, are shown on page 38 together

with their biographical details. None of the Directors or

any persons connected with them had a material interest

in the transactions and arrangements of, or the

agreement with, the Investment Manager during the

year.

Results and dividends

A summary of the Company’s performance during the

year ended 31 December 2021 and the outlook for the

forthcoming year is set out in the Strategic Report on

pages 7 to 9.

The interim dividends paid for the year ended

31 December 2021 are set out in note 7 to the Financial

Statements.

Corporate governance

The Company’s Corporate Governance Statement is set

out on pages 44 to 56 and forms part of this report.

40 Annual Report and audited Financial Statements • December 202140

Strategic report • Governance • Financial • Additional information

the block listing. The shares may be issued from time to

time for cash and in accordance with the Company’s

Articles of Association, provided that such issues are

made at prices of not less than the prevailing net asset

value per share.

Purchase of own shares

The current authority to repurchase up to 14.99% of the

Company’s issued share capital to be held in treasury or

for cancellation was granted to the Directors on 9 June

2021 and will expire at the conclusion of the 2022 Annual

General Meeting when a resolution for its renewal will

be proposed (see page 106 for further information).

On 18 November 2020, the Company announced that it

had given instructions to Winterflood Securities Limited

(“Winterflood”) to purchase the Company’s shares

pursuant to the authority by Shareholders at the

previous Annual General Meeting. On 30 April 2021, the

Company announced its intention to implement a “zero

discount” policy to seek to manage the discount or

premium to net asset value and gave instructions to

Winterflood to implement the policy on the Board’s

behalf. During the year ended 31 December 2021, the

Company bought back a total of 2,882,749 shares

(2020:140,000) to be held in treasury at an average price

of 97.5p per share (2020: 91.6p) representing total

consideration of £2,810,635 (2020: £128,175).

Substantial shareholdings

The Company has been informed of the following latest

notifiable interests in the voting rights of the Company,

in accordance with Disclosure Guidance and

Transparency Rule 5.1.2, as at 31 December 2021:

Share issues

At a General Meeting of the Company held on

18 September 2018, the Directors were granted the

following authorities which will expire on 18 September

2023:

i. The Directors were generally and unconditionally

authorised in accordance with Section 551 of the

Companies Act to exercise all the powers of the

Company to allot up to 400,000,000 Ordinary

Shares and/or C Shares in aggregate.

Such authority will expire at the end of the period

of five years from the date of passing of the

resolution, save that the Company may, at any time

prior to the expiry of such authority, make an offer

or enter into an agreement that would or might

require Shares to be allotted in pursuance of such

offer or agreement as if such authority had not

expired.

ii. The Directors were generally empowered (pursuant

to Sections 570 and 573 of the Companies Act) to

allot Shares and to sell Shares from treasury for

cash pursuant to the authority referred to in

paragraph (i) above as if Section 561 of the

Companies Act did not apply to any such allotment

or sale. Such power will expire at the end of the

period of five years from the date of passing of the

resolution, save that the Company may, at any time

prior to the expiry of such power, make an offer or

enter into an agreement which would or might

require the Shares to be allotted or sold from

treasury after the expiry of such power and the

Directors may allot or sell from treasury equity

securities in pursuance of such an offer or

agreement as if such power had not expired.

The Company has a block listing of 14,203,384 Ordinary

Shares, as the balance of an initial application for a block

listing of 20,000,000 Ordinary Shares listed and

admitted to trading on the premium segment of the

LSE’s main market on 17 January 2019. During the year

ended 31 December 2021, no shares were issued under

Directors’ report

4141Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

●

Listing Rule 9.8.4(10). As Chair of Private Assets at

M&G plc prior to his retirement, Mark Hutchinson

was deemed to have an interest in the Company’s

management agreement.

There were no other contracts of significance subsisting

during the year under review to which the Company is a

party and in which a Director of the Company is or was

materially interested, or between the Company and a

controlling shareholder.

The Directors confirm that there are no additional

disclosures to be made in relation to Listing Rule 9.8.4.

Qualifying third-party indemnity

provisions

Under the Company’s articles of association, the

Directors are provided, subject to the provisions of UK

legislation and at the discretion of the Board, with an

indemnity in respect of liabilities which they may sustain

or incur in connection with their appointment. This

indemnity was in force during the year and remains in

force as at the date of this report. Apart from this, there

are no qualifying third-party indemnity provisions or

qualifying pension scheme indemnity provisions that

would require disclosure.

Auditor

The Directors who held office at the date of approval of

the Directors’ Report confirm that, so far as they are

aware, there is no relevant audit information of which the

Company’s Auditor is unaware and each Director has

taken all the steps that they ought to have taken as a

Director to make themselves aware of any relevant audit

information and to establish that the Company’s Auditor

is aware of that information.

Deloitte LLP has expressed its willingness to continue in

office as Auditor of the Company and resolutions for its

appointment and for the Directors to determine its

remuneration will be proposed at the forthcoming AGM.

Number of

shares held

% of voting

rights at

31 December

2021

M&G plc 38,830,132 27.4

Alder Investment Management

Limited

7,877,039 5.6

EFG Private Bank Limited 7,226,335 5.1

Brewin Dolphin Limited 7,106,845 5.0

SG Kleinwort Hambros Bank

Limited

5,732,836 4.0

The Company has not been informed of any changes to

the above interests between 31 December 2021 and the

date of this Report.

Articles of Association

The Company’s Articles of Association may only be

amended by a special resolution at a General Meeting of

the Shareholders. The Articles of Association were

amended by special resolution of the shareholders at

the AGM held on 9 June 2021, to introduce increased

flexibility for the Directors to determine the time and

place of General Meetings and the manner in which they

are conducted.

Requirements of the listing rules

Listing Rule 9.8.4 requires the Company to include

certain information in a single identifiable section of the

Annual Report or a cross-reference table indicating

where the information is set out.

The information is set out as follows:

●

Listing Rule 9.8.4(5). The information required in

relation to Mark Hutchinson waiving his Director’s

fee is explained on page 60; and

Directors’ report

Substantial shareholdings

(continued)

42 Annual Report and audited Financial Statements • December 202142

Strategic report • Governance • Financial • Additional information

●

The election and re-election of Directors

●

The appointment of Deloitte LLP as Auditor and the

authorisation of the Directors to determine the

remuneration of the Auditor

●

The purchase of own shares

●

The holding of general meetings (other than AGMs)

on not less than 14 clear days’ notice

The details about the resolutions are provided on pages

105 to 109.

Dividend policy

By way of a resolution granted on 18 September 2018,

the Directors are authorised to declare and pay all

dividends as interim dividends without the need for the

prior approval of the Company’s shareholders. However,

regarding Corporate Governance best practices relating

to the payment of interim dividends, without shareholder

approval of a final annual dividend, the Board has

decided to seek express approval of its dividend policy.

The Company’s dividend policy remains unchanged to

that disclosed in the IPO Prospectus published on

26 September 2018 which stated that the Company

intends to distribute at least 85% of its distributable

income earned in each financial year by way of dividends

and that, from 2020, such dividends are intended to be

paid quarterly.

Authority to allot Ordinary Shares

and to sell shares from treasury for

cash

As explained on page 40, the authorities granted on 18

September 2018 remain in place and therefore the

Directors will not seek any additional authorities at the

forthcoming AGM.

Financial risk management

As noted on page 25, information about the Company’s

financial risk management objectives and policies is set

out in note 13 of the Financial Statements.

Going concern and viability

statement

The going concern statement and viability statement can

be found on pages 24 and 25 of the Strategic Report.

Political donations

The Company made no political donations during the

year to 31 December 2021 to organisations.

Directors’ and Officers’ liability

insurance

Directors’ and Officers’ liability insurance cover is

maintained by the Company, at its expense, on behalf of

the Directors.

AGM

The Directors are pleased to invite Shareholders to

attend the third Annual General Meeting of the

Company, at the offices of M&G Alternatives Investment

Management Limited, subject to any restrictions relating

to COVID-19 which may be in force at the time.

The Notice of AGM to be held on 8 June 2022 is set out

on pages 105 to 109. Shareholders are being asked to

vote on various items of business as follows:

●

The receipt and acceptance of the Strategic Report,

Directors’ Report, Auditor’s Report and the audited

Financial Statements for the year ended

31 December 2021

●

The receipt and approval of the Directors’

Remuneration Report

●

Approval of the Company’s dividend policy

Directors’ report

4343Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Purchase of own shares

Resolution 10, a special resolution, will renew the

Company’s authority to make market purchases of up

to 21,041,915 Ordinary Shares (being 14.99% of the

issued share capital as at the date of the Notice of AGM,

excluding any treasury shares, or, if changed, 14.99% of

the issued share capital, excluding any treasury shares,

immediately following the passing of the resolution),

either for cancellation or placing into treasury at the

determination of the Directors. Purchases of Ordinary

Shares will be made within guidelines established from

time to time by the Board. Any purchase of Ordinary

Shares would be made only out of the available cash

resources of the Company.

The maximum price which may be paid for an Ordinary

Share must not be more than the higher of (i) 5.0%

above the average of the mid-market value of the

Ordinary Shares for the five business days before the

purchase is made, or (ii) the higher of the price of the

last independent trade and the highest current

independent bid for the Ordinary Shares. The minimum

price which may be paid is £0.01 per Ordinary Share.

This authority, if approved by Shareholders, will expire

at the AGM to be held in 2023, when a resolution for its

renewal will be proposed.

Notice period for General

Meetings

In terms of the Companies Act 2006, the notice period

for General Meetings (other than an AGM) is 21 clear

days’ notice unless the Company: (i) has gained

shareholder approval for the holding of General

Meetings on 14 clear days’ notice by passing a special

resolution at the most recent AGM; and (ii) offers the

facility for all shareholders to vote by electronic means.

Directors’ report

The Company would like to preserve its ability to call

General Meetings (other than an AGM) on less than

21 clear days’ notice. The shorter notice period proposed

by Resolution 11, a special resolution, would not be used

as a matter of routine, but only where the flexibility is

merited by the business of the meeting and is thought

to be in the interests of Shareholders as a whole.

The approval will be effective until the date of the AGM

to be held in 2023, when it is intended that a similar

resolution will be proposed.

Directors’ recommendation

The Directors consider each resolution being proposed

at the AGM to be in the best interests of the Company

and shareholders as a whole and they unanimously

recommend that all shareholders vote in favour of them,

as they intend to do in respect of their own beneficial

shareholdings.

By order of the Board

Link Company Matters Limited

Company Secretary

23 March 2022

44 Annual Report and audited Financial Statements • December 202144

Strategic report • Governance • Financial • Additional information

The UK Code includes provisions relating to the role of

the chief executive, executive directors’ remuneration

and the need for an internal audit function. For the

reasons set out in the AIC Guide, the Board considers

that these provisions are not relevant to the position of

the Company, being an externally managed investment

company. In particular, all of the Company’s day-to-day

management and administrative functions are

outsourced to third parties. As a result, the Company

has no executive Directors, employees or internal

operations. The Company has therefore not reported

further in respect of these provisions.

The Principles of the AIC Code

The AIC Code is made up of 17 principles split into five

sections:

●

Board leadership and purpose

●

Division of responsibilities

●

Composition, succession and evaluation

●

Audit, risk and internal control

●

Remuneration

Corporate governance statement

Introduction

The Listing Rules and the Disclosure Guidance and

Transparency Rules (Disclosure Rules) of the FCA

require listed companies to disclose how they have

adhered to the principles and followed the

recommended provisions of the corporate governance

code to which the issuer is subject.

The Board has considered the Principles and Provisions

of the AIC Code of Corporate Governance (AIC Code),

published In February 2019. The AIC Code addresses

the Principles and Provisions set out in the UK Corporate

Governance Code (the UK Code) issued by the Financial

Reporting Council (FRC), as well as setting out additional

principles and recommendations on issues that are of

specific relevance to investment trusts.

The Board considers that reporting against the Principles

and Provisions of the AIC Code, which has been

endorsed by the FRC, provides more relevant information

to shareholders than the UK Code. The terms of the

FRC’s endorsement mean that AIC members who report

against the AIC Code fully meet their obligations under

the UK Code and the related disclosure requirements

contained in the Listing Rules. The AIC Code is available

on the AIC website (www.theaic.co.uk). It includes an

explanation of how the AIC Code adapts the Principles

and Provisions set out in the UK Code to make them

relevant for investment companies. The UK Code can

be viewed at www.frc.org.uk

Throughout the year ended 31 December 2021, the

Company has complied with the provisions of the AIC

Code and the relevant provisions of the UK Code,

except as set out below.

45Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

Board leadership and purpose

A. A successful company is led by

an effective board, whose role

is to promote the long-term

sustainable success of the

Company, generating value for

shareholders and contributing

to wider society.

The Board considers the Company’s long-term sustainable success as its

main focus and all decisions are considered from this point of view. As

outlined below, the Company is run with a very clear culture and values

which are embedded into everything the Company does.

As part of this the opportunities and risks faced by the business are

considered, monitored and assessed on a regular basis, both in terms of

potential and emerging risks that the business may face. More detail

regarding the principal risks and the sustainability of the Company’s

business model can be found in the Strategic Report on pages 18 to 24. In

addition, the Company, through the Investment Manager, has a strong,

long-term commitment to a responsible investment methodology, which

expressly considers the interests of wider society within the Investment

Manager’s investment processes. Details can be found on pages 34 to 36 of

the Strategic Report.

B. The Board should establish the

Company’s purpose, values

and strategy, and satisfy itself

that these and its culture are

aligned. All directors must act

with integrity, lead by example

and promote the desired

culture.

The purpose of the Company is the investment objective which is to

generate a regular and attractive level of income with low asset value

volatility. It seeks to do this by investing in a diversified portfolio of public

and private debt and debt-like instruments. The Company is mainly invested

in private debt instruments. This part of the portfolio will generally include

Debt Instruments which are nominally quoted but are generally illiquid. The

strategy that the Board follows in order to execute this is outlined in the

Strategic Report on pages 4 to 9. More detail regarding how the Company

considers the long-term sustainable success of the Company can be found

in the Section 172 statement on pages 28 to 33.

The Board adopts key values that are embedded in the culture of the

business and are important to any investment decision made by the

Company. These values and culture also drive how the Board and its

relationship with the Investment Manager proceed. These are to:

●

invest in a manner consistent with the PRI Principles;

●

ensure all business decisions are made once all potential impacts on

relevant stakeholders are fully understood;

●

encourage open, honest and collaborative discussions at all levels in

Board meetings, with Shareholders and with other stakeholders; and

●

seek to avoid or manage any potential conflicts of interest.

The values and culture of the business are considered as part of the annual

board evaluation process to ensure that they remain a key focus that all

decisions are based on.

The Principles of the AIC Code (continued)

46 Annual Report and audited Financial Statements • December 202146

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Corporate governance statement

AIC Code Principle Compliance statement

C. The Board should ensure that

the necessary resources are in

place for the Company to meet

its objectives and measure

performance against them.

The Board should also

establish a framework of

prudent and effective controls,

which enable risk to be

assessed and managed.

The Board and the Management Engagement Committee regularly review

the performance of the Company and the performance and resources of

the Investment Manager to ensure that the Company can continue to meet

its investment objective.

The Board assesses the performance of the Investment Manager in a

number of different ways, including through the KPIs.

The Audit Committee is responsible for assessing and managing risks and

further information about how this is done can be found in the Report of the

Audit Committee on pages 64 to 68.

D. In order for the Company to

meet its responsibilities to

shareholders and

stakeholders, the Board should

ensure effective engagement

with, and encourage

participation from, these

parties.

The Board understands its responsibilities to Shareholders and other

stakeholders and considers the expressed opinions of all such parties when

making any material decision. The Board considers that, other than

Shareholders, their other key stakeholders are their third-party service

providers and the Investment Manager in particular. The Management

Engagement Committee considers the relationship with all third-party

service providers on at least an annual basis and there is an ongoing

dialogue with the Investment Manager to ensure views are aligned.

More information regarding how the Board engages with stakeholders

and considers the impact that any material decision will have on relevant

shareholders can be found in the Section 172 statement on pages 28 to 33.

Representatives of the Investment Manager regularly meet institutional

shareholders to discuss strategy and to understand their issues and

concerns and, if applicable, to discuss corporate governance issues.

The results of such meetings are reported at the following Board meeting.

Regular reports on investor sentiment and industry issues from the

Company’s broker are submitted to the Board.

Any substantive communications regarding major corporate issues would

be discussed by the Board taking into account representations from the

Investment Manager, the auditor, legal advisers, the broker and the

Company Secretary.

The Principles of the AIC Code (continued)

47Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

Division of responsibilities

F. The chair leads the Board and

is responsible for its overall

effectiveness in directing the

Company. They should

demonstrate objective

judgement throughout their

tenure and promote a culture

of openness and debate. In

addition, the chair facilitates

constructive board relations

and the effective contribution

of all non-executive directors,

and ensures that directors

receive accurate, timely and

clear information.

There is a clear division of responsibility between the Chairman, the

Directors, the Investment Manager and the Company’s other third-party

service providers. The Chairman is responsible for leading the Board,

ensuring its effectiveness in all aspects of its role and is responsible for

ensuring that all Directors receive accurate, timely and clear information.

The Board meets regularly throughout the year and representatives of the

Investment Manager are in attendance, when appropriate, at each meeting

and most Committee meetings.

The Board has agreed a schedule of matters specifically reserved for

decision by the Board. This includes establishing the investment objective,

strategy and benchmarks, the permitted types or categories of investment,

the markets in which transactions may be undertaken, the level of permitted

gearing and borrowings, the amount or proportion of the assets that may

be invested in any category of investment or in any one investment, and the

Company’s treasury and share buyback policies.

The Board, at its regular meetings, undertakes reviews of key investment

and financial data, revenue projections and expenses, analyses of asset

allocation, transactions and performance comparisons, share price and net

asset value performance, gearing, marketing and shareholder

communication strategies, the risks associated with pursuing the

investment strategy and industry issues.

The review of the performance of the Chairman was carried out during the

year by Richard Boléat as Senior Independent Director. It was concluded

that the Directors believed the Chairman encouraged good debate, ensured

all Directors were involved in discussions and that the Board as a whole was

working well.

The Principles of the AIC Code (continued)

48 Annual Report and audited Financial Statements • December 202148

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

G. The Board should consist of

an appropriate combination

of directors (and, in particular,

independent non-executive

directors) such that no one

individual or small group of

individuals dominates the

Board’s decision making.

During the year Mark Hutchinson retired and therefore all of the Directors

are non-executive and are now independent of the Investment Manager

and the other service providers. A majority of the Board will at all times be

independent of the Investment Manager.

The Chairman, David Simpson, was independent of the Investment

Manager at the time of his appointment and remains so.

Each Director is not a director of another investment company managed by

the Company’s Investment Manager, nor has any Board member been an

employee of the Company or any of its service providers.

The Board evaluation concluded that each Director provides a valuable

contribution to Board meeting discussions and exercises appropriate levels

of challenge and debate.

During the year under review, Richard Boléat acted as Senior Independent

Director of the Company.

H. Non-executive directors

should have sufficient time to

meet their board

responsibilities. They should

provide constructive challenge,

strategic guidance, offer

specialist advice and hold third

party service providers to

account.

As part of the Board evaluation process, the contributions of each Director,

as well as the time commitments made by each board member are

considered and reviewed. Directors’ other commitments are regularly

reviewed and any new appointments are considered by the other Directors

to ensure there is no conflict of interest or risk of overboarding.

As explained above, it was concluded that each Director provided

appropriate levels of challenge and provided the Company and the

Investment Manager with guidance and advice when required.

The Management Engagement Committee reviews the performance and

cost of the Company’s third-party service providers on an annual basis.

More information regarding the work of the Management Engagement

Committee can be found on pages 54 to 55.

I. The Board, supported by the

Company Secretary, should

ensure that it has the policies,

processes, information, time

and resources it needs in order

to function effectively and

efficiently.

The Directors have access to the advice and services of the Company

Secretary through its appointed representative who is responsible to the

Board for ensuring that Board procedures are followed and that applicable

rules and regulations are complied with. The Company Secretary is also

responsible for ensuring good information flows between all parties.

The Principles of the AIC Code (continued)

49Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

Composition, succession and

evaluation

J. Appointments to the Board

should be subject to a formal,

rigorous and transparent

procedure, and an effective

succession plan should be

maintained. Both

appointments and succession

plans should be based on

merit and objective criteria

and, within this context, should

promote diversity of gender,

social and ethnic backgrounds,

cognitive and personal

strengths.

The Board has established a Nomination Committee, comprising all the

independent Directors. This Committee will lead the appointment process

of new Directors as and when vacancies arise and as part of the Directors’

ongoing succession plans. More information regarding the work of the

Nomination Committee and the appointment of Jane Routledge can be

found on page 55.

The Board has adopted a diversity policy, which acknowledges the benefits

of greater diversity and remains committed to ensuring that the Company’s

Directors bring a wide range of skills, knowledge, experience, backgrounds

and perspectives to the Board. Whilst the Board does not feel that it would

be appropriate to set targets as all appointments are made on merit, the

following objectives for the appointment of Directors have been

established:

●

All Board appointments will be made on merit, in the context of the

skills, knowledge and experience that are needed for the Board to be

effective.

●

Long lists of potential non-executive Directors should include diverse

candidates of appropriate merit.

The Company is committed to ensuring that any board vacancies are filled

by the most qualified candidates.

The Principles of the AIC Code (continued)

50 Annual Report and audited Financial Statements • December 202150

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

K. The Board and its committees

should have a combination of

skills, experience and

knowledge. Consideration

should be given to the length

of service of the Board as a

whole and membership

regularly refreshed.

The Directors’ biographical details are set out on page 38 of this Report.

These demonstrate the wide range of skills and experience that they bring

to the Board. The Board carried out a skills audit during the year and will

continue to do so on an annual basis concurrently with the Board evaluation.

Board membership was refreshed during the year with the retirement of

Mark Hutchinson and the appointment of Jane Routledge further enhancing

the skills and experience provided to the Company.

The Board has adopted a Tenure Policy for all Directors, including the

Chairman, which states that the Board believes that it is an advantage to

have the continuous contribution of Directors over a period of time during

which they are able to develop awareness and insight of the Company and

thereby be able to make a valuable contribution to the Board as a whole.

The Board believes that recommendations for re-election should be on an

individual basis following a rigorous review which assesses the contribution

made by the Director concerned, and takes into account the need for

regular refreshment and diversity. The Board believes that it is appropriate

for a Director to serve for up to nine years following their initial election, and

it is expected that Directors will stand down from the board by the

conclusion of the AGM following that period.

The Principles of the AIC Code (continued)

51Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

AIC Code Principle Compliance statement

L. Annual evaluation of the Board

should consider its

composition, diversity and how

effectively members work

together to achieve objectives.

Individual evaluation should

demonstrate whether each

director continues to

contribute effectively.

The Board has agreed to evaluate its own performance and that of its

Committees, Chairman and Directors on an annual basis. For the year under

review this was carried out by way of a questionnaire and subsequent

individual discussions. The Chairman led the assessment, which covered

the functioning of the Board as a whole, the effectiveness of the Board

Committees and the independence and contribution made by each Director.

The Chairman discussed the responses with each Director individually.

The Chairman absented himself from the Board’s review of his effectiveness

as the Company Chairman, and this review was led by Richard Boléat, the

Senior Independent Director. Ms Routledge was excluded from this year’s

review as she had recently been appointed.

Following this review, the Board is satisfied that the structure, mix of skills

and operation of the Board is effective and relevant for the Company.

The individual performance of each Director standing for election has been

evaluated and it is recommended that shareholders vote in favour of their

election at the AGM. Directors are subject to annual re-election by

shareholders and accordingly, all Directors will submit themselves for

re-election by shareholders at the forthcoming Annual General Meeting.

More information regarding the proposed election of each Director can be

found on page 105.

Audit, risk and internal control

M. The Board should establish

formal and transparent policies

and procedures to ensure the

independence and

effectiveness of external audit

functions and satisfy itself on

the integrity of financial and

narrative statements.

The Audit Committee has put in place a non-audit services policy, which

ensures that any work outside the scope of the standard audit work

requires prior approval by the Audit Committee. This enables the

Committee to ensure that the external auditors remain fully independent.

In addition, the Audit Committee carries out a review of the performance of

the external auditor on an annual basis. Feedback from other third parties,

including the Investment Manager, is included as part of this assessment to

ensure the Audit Committee takes into account the views of different

parties who have a close working relationship with the external auditor.

The Audit Committee monitors press coverage in relation to the external

auditor to ensure that any matters of concern in relation to the external

auditor’s activities generally are identified promptly.

Further information regarding the work of the Audit Committee can be

found on page 64 to 68.

Corporate governance statement

The Principles of the AIC Code (continued)

52 Annual Report and audited Financial Statements • December 202152

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

N. The Board should present a

fair, balanced and

understandable assessment of

the Company’s position and

prospects.

The Audit Committee has considered the Annual Report and Accounts

as a whole and believes that the document presents a fair, balanced and

understandable assessment of the Company’s position and prospects.

In particular, the Committee has considered the language used in the

document to ensure technical terminology is avoided to the extent possible,

or where used it is suitably explained.

O. The Board should establish

procedures to manage risk,

oversee the internal control

framework, and determine the

nature and extent of the

principal risks the Company is

willing to take in order to

achieve its long-term strategic

objectives.

The Audit Committee reviews reports from the principal service providers

on compliance and the internal and financial control systems in operation

and relevant independent audit reports thereon.

The Audit Committee has carried out a review of the effectiveness of the

Company’s systems of internal control as they have operated during the

year under review and up to the date of approval of the Annual Report.

Given the nature of the business, the Company is reliant on its service

providers and their internal controls. The Audit Committee reviews the

Investment Manager’s and Administrator’s compliance and control systems

in operation insofar as they relate to the affairs of the Company.

As set out in more detail in the Report of the Audit Committee on pages

64 to 68, the Company has in place a detailed system for assessing the

adequacy of those controls.

The Audit Committee’s internal control oversight focus is described in more

detail in the Report of the Audit Committee on pages 67 to 68.

The Principles of the AIC Code (continued)

53Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Corporate governance statement

AIC Code Principle Compliance statement

Remuneration

P. Remuneration policies and

practices should be designed

to support strategy and

promote long-term sustainable

success.

As outlined in the Remuneration Report on pages 57 to 63, the Company

follows the recommendation of the AIC Code that non-executive Directors’

remuneration should reflect the time commitment and responsibilities of the

role. The Company’s policy is that the remuneration of non-executive

Directors should reflect the experience of the Board as a whole and be

determined with reference to comparable organisations and appointments.

Directors are not eligible for bonuses, share options, long-term incentive

schemes or other performance related benefits as the Board does not

believe that this is appropriate for non-executive Directors.

The Remuneration Policy is therefore designed to attract and retain high

quality Directors, whilst ensuring that Directors remain focused and

incentivised to promote the long-term sustainable success of the Company.

As at the date of this Report, all Directors own shares in the Company. All

shares were purchased in the open market and using the Directors’ own

resources.

Directors’ fees were initially set at the time of the Company’s IPO. The

Remuneration Committee annually reviews the fees paid to the Directors

and compares these with the fees paid by the Company’s peer group and

the investment trust industry generally, taking into account the time

commitment and responsibility of each Board member.

More information regarding the work of the Remuneration Committee can

be found in the Remuneration Report on page 57.

Q. A formal and transparent

procedure for developing

policy remuneration should be

established. No director should

be involved in deciding their

own remuneration outcome.

The Remuneration Policy has been developed with reference to comparable

organisations and appointments. There is an agreed fee which all non-

executive Directors receive (irrespective of experience or tenure) and an

additional fee for the role of Audit Committee Chairman. There is also an

agreed fee for the role of Chairman. Any changes to the Chairman’s fee are

considered by the Remuneration Committee as a whole, with the exception

of the Chairman who excuses himself from this part of the meeting.

The Principles of the AIC Code (continued)

54 Annual Report and audited Financial Statements • December 202154

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Corporate governance statement

AIC Code Principle Compliance statement

R. Directors should exercise

independent judgement and

discretion when authorising

remuneration outcomes, taking

account of company and

individual performance, and

wider circumstances.

Any decision with regard to remuneration is taken after considering the

performance of the Company and the current market conditions.

The Remuneration Committee has no current intention to change the

Remuneration Policy, as approved by shareholders at the 2020 Annual

General Meeting, for the foreseeable future. If any significant changes to

the Remuneration Policy were to be considered, the Remuneration

Committee would consult with shareholders and seek external advice

before proposing any such changes. For any changes to be effective the

Remuneration Policy would be proposed for approval at a General Meeting,

if necessary outside of the statutory requirement to seek shareholder

consent to the Remuneration Policy on a triennial basis.

Board Committees

The Board has agreed a schedule of matters specifically

reserved for decision by the full Board, subject to which

the Board has delegated specific duties to Committees

of the Board which operate within written terms of

reference. Link Company Matters Limited acts as

Company Secretary to each Committee. No persons

other than the Committee members are entitled to

attend Committee meetings unless formally invited by

the Committee. Copies of the terms of reference for

Board Committees are available from the Company

Secretary and on the Company’s website.

The Board has also adopted a procedure for Directors,

in the furtherance of their duties, to take independent

professional advice at the expense of the Company.

Audit Committee

The Audit Committee comprises Richard Boléat FCA

as Chairman, Barbara Powley, David Simpson and Jane

Routledge. The Audit Committee meets at least four

times a year. As David Simpson was independent on

appointment and provides significant input into Audit

Committee meetings, the Directors believe it is

appropriate for him to be a member of the Audit

Committee, despite his role as Chairman of the Board.

In particular, the Board considers that the Audit

Committee as a whole has competence relevant to the

sector and the Board is satisfied that at least one

member of the Audit Committee has recent and relevant

financial experience. The Board considers that the

members of the Audit Committee have the requisite

skills and experience to fulfil the responsibilities of the

Audit Committee. The Audit Committee examines the

effectiveness of the Company’s control systems.

It reviews the Half Year and Annual Reports and also

receives information from the Investment Manager.

It reviews the scope, results, cost effectiveness,

independence and objectivity of the external auditor.

The Audit Committee has set out a formal Report on

pages 64 to 68 of the Annual Report.

Management Engagement

Committee

The Management Engagement Committee consists of

Richard Boléat, Barbara Powley, Jane Routledge and is

chaired by David Simpson. The Management

Engagement Committee meets at least once a year or

more often if required. Its principal duties are to consider

The Principles of the AIC Code (continued)

5555Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Corporate governance statement

the terms of appointment of the Investment Manager

and other service providers and it will annually review

those appointments and the terms of engagement.

The Committee considers the quality, cost and

remuneration method of the service provided by the

Investment Manager against its contractual obligations

and the Board receives regular reports on compliance

with the Investment Restrictions it has set. It also

considers the performance analysis provided by the

Investment Manager.

The Management Engagement Committee also reviews

the arrangements with, and the services provided by,

the Custodian to ensure that the safeguarding of the

Company’s assets and security of the shareholders’

investment is being maintained.

The Management Engagement Committee will review,

at least annually, the performance of all of the

Company’s third-party service providers, including the

level and structure of fees payable and the length of the

notice period, to ensure that they remain competitive

and in the best interests of Shareholders, as well as

reviewing service providers’ anti-bribery and corruption

policies to address the provisions of the Bribery Act

2010, together with their policies on whistleblowing and

cyber crime prevention.

Nomination Committee

The Company’s Nomination Committee consists of

Richard Boléat, Barbara Powley and Jane Routledge and

is chaired by David Simpson. The Nomination Committee

meets at least once a year or more often if required. Its

principal duties will be to advise the Board on

succession planning bearing in mind the balance of

skills, knowledge and experience existing on the Board

and will make recommendations to the Board in this

regard. The Nomination Committee advises the Board

on its balance of relevant skills, experience, gender,

race, ages and length of service of the Directors serving

on the Board. All appointments to the Board will be

made in a formal and transparent matter.

The Nomination Committee met once during the year

ended 31 December 2021 to formally recommend to the

Board the re-election of all Directors at the 2021 AGM. In

addition the Nomination Committee met a further three

times to consider and engage the services of Nurole, an

external search consultancy, in the search for an

additional Non-Executive Director and subsequently to

recommend to the Board the appointment of Jane

Routledge as a Non-Executive Director. The external

search consultancy had no connection with the

Company or individual Directors.

New appointees to the Board will be provided with a full

induction programme. This programme will cover the

Company’s investment strategy, policies and practices.

The Directors are also given key information on the

Company’s regulatory and statutory requirements as

they arise, including information on the role of the Board,

matters reserved for its decision, the terms of reference

for the Board Committees, the Company’s corporate

governance practices and procedures and the latest

financial information.

Remuneration Committee

The Company’s Remuneration Committee consists of

David Simpson, Richard Boléat and Jane Routledge

and is chaired by Barbara Powley. The Remuneration

Committee meets at least once a year or more often

if required. The Remuneration Committee’s main

functions include: (i) agreeing the policy for the

remuneration of the Directors and reviewing any

proposed changes to the policy; (ii) reviewing and

considering ad hoc payments to the Directors in relation

to duties undertaken over and above normal business;

and (iii) appointing independent professional

remuneration advice.

Management Engagement

Committee (continued)

56 Annual Report and audited Financial Statements • December 202156

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Corporate governance statement

Meeting attendance

The number of scheduled Board and Board Committee meetings held during the year ended 31 December 2021 and

the attendance of the individual Directors is shown below:

Board Audit Committee Nomination

Committee

Management

Engagement

Committee

Remuneration

Committee

David Simpson 5/5 5/5 1/1 1/1 1/1

Richard Boléat 5/5 5/5 1/1 1/1 1/1

Barbara Powley 5/5 5/5 1/1 1/1 1/1

Mark Hutchinson

3/3 n/a n/a n/a n/a

Jane Routledge

1/1 1/1 n/a n/a n/a

Mark Hutchinson retired on 31 August 2021.

Jane Routledge was appointed on 25 October 2021.

The Board meets at least four times a year to review investment performance, financial reports and other reports of

a strategic nature. Board and Board Committee meetings are also held on an ad hoc basis to consider particular issues

as they arise. Key representatives of the Investment Manager attend each meeting and between these meetings there

is regular contact with the Chairman and other Directors where appropriate.

Following the year end, one meeting of each of the Nomination Committee, Management Engagement Committee and

the Remuneration Committee and two meetings of the Audit Committee took place at which all Committee members

were present.

Link Company Matters Limited

Corporate Secretary

23 March 2022

The Remuneration Committee met once during the year

to consider whether the current level of non-executive

Director fees remained appropriate. The Committee

agreed that Director fees would increase in line with

inflation since the Company’s launch, with effect from

1 January 2021. Further details can be found in the

Directors’ Remuneration Report on page 57. Since the

year end, the Remuneration Committee has met to

consider the Remuneration Report which it

recommended to be put to the shareholders at the AGM.

In addition, the Committee agreed that Director fees

would increase in line with inflation, with effect from

1 January 2022. Further details can be found in the

Directors’ Remuneration Report on page 57.

The Remuneration Report is set out on pages 57 to 63 of

the Annual Report.

Remuneration Committee

(continued)

5757Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Directors’ remuneration report

The Board presents the Directors’ Remuneration Report

for the year ended 31 December 2021. This Report is

prepared in accordance with Schedule 8 of the Large

and Medium-sized Companies and Groups (Accounts

and Reports) (Amendment) Regulations 2013.

A resolution to approve this Report will be proposed at

the AGM of the Company to be held on 8 June 2022.

The law requires the Company’s auditor to audit certain

disclosures provided. Where disclosures have been

audited, they are indicated as such. The auditor’s opinion

is included in their report on pages 71 to 81.

Statement from the Chairman of

the Remuneration Committee

Directors’ remuneration is determined by the

Remuneration Committee, at its discretion within an

aggregate ceiling of £300,000 per annum, as set out

in the Company’s Articles of Association.

The Remuneration Committee’s main functions include:

(i) agreeing the policy for the remuneration of the

Directors and reviewing and proposing changes to the

policy; (ii) reviewing and considering ad hoc payments

to the Directors in relation to duties undertaken over and

above normal business; and (iii) appointing independent

professional remuneration advisors. The Remuneration

Committee consists of myself, David Simpson, Richard

Boléat and Jane Routledge.

Each Director abstains from voting on his or her own

individual remuneration.

During the year ended 31 December 2021, the annual

fees were set out at the rate of £41,000 for the

Chairman, £35,750 for the Chairman of the Audit

Committee and £30,750 for a Director. The Board’s

remuneration is considered annually. Following a review,

it was agreed that effective from 1 January 2022, the

fees would be increased in line with inflation,

accordingly the fees of the Chairman would increase to

£43,000, the Chairman of the Audit Committee to

£37,500 and the other Directors to £32,250.

In accordance with the Companies Act 2006, the

Company is required to obtain shareholder approval of

its remuneration policy on a triennial basis. An ordinary

resolution for the approval of the remuneration policy as

set out below was put to members at the 2020 Annual

General Meeting. It is the intention of the Board that the

policy on remuneration will continue to apply for the

current financial year.

Remuneration policy

The Company follows the recommendation of the AIC

Code that non-executive Directors’ remuneration should

reflect the time commitment and responsibilities of the

role. The Company’s policy is that the remuneration of

non-executive Directors should reflect the experience of

the Board as a whole and be determined with reference

to comparable organisations and appointments. The

Board also considers the average rate of inflation during

the period since the last fee increase and reviews the

level of remuneration in comparison with other

investment trusts of a similar size and/or mandate, as

well as taking account of any data published by the AIC

to ensure that fees are in line with industry practice. This

comparison, together with consideration of any

alteration in non-executive Directors’ responsibilities, is

used to review whether any change in remuneration is

necessary.

All Directors are non-executive, appointed under the

terms of letters of appointment. There are no service

contracts in place. The Company has no employees.

The fees for the non-executive Directors are determined

within the limits (not to exceed £300,000 per annum) set

out in the Company’s Articles of Association, or any

greater sum that may be determined by special

resolution of the Company. Directors are not eligible for

bonuses, share options, long-term incentive schemes or

other performance-related benefits as the Board does

not believe that this is appropriate for non-executive

Directors. There are no pension arrangements or

retirement benefits in place for the Directors of the

Company.

58 Annual Report and audited Financial Statements • December 202158

Strategic report • Governance • Financial • Additional information

Under the Company’s Articles of Association, if any

Director is called upon to perform or render any special

duties or services outside their ordinary duties as a

Director, they may be paid such reasonable additional

remuneration as the Board, or any committee authorised

by the Board, may from time to time determine.

The Directors are entitled to be repaid all reasonable

travelling, hotel and other expenses properly incurred by

them in or about the performance of their duties as

Director, including any expenses incurred in attending

meetings of the Board or any committee of the Board or

general meetings of the Company.

Directors’ and Officers’ liability insurance cover is

maintained by the Company on behalf of the Directors.

Directors’ remuneration report

Remuneration policy (continued)

Directors’ remuneration components

The components of the remuneration package for the Company’s non-executive Directors, which comprise the

Directors’ Remuneration Policy, are set out below:

Remuneration type Description and approach to determination

Fixed fees Annual fees are set for each of the Directors, taking into account the wider

industry and individual skills, time commitment and experience.

When making recommendations for any changes in fees, the Committee will

also consider wider factors such as the average rate of inflation over the

period since the previous review, and the level and any change in complexity

of the Directors’ responsibilities (including additional time commitments as

a result of increased regulatory or corporate governance requirements).

These fees shall not exceed £300,000 per annum, divided between the

Directors as they may determine.

Directors do not participate in discussions relating to their own fee.

Additional fees If any Director, being willing and having been called upon to do so, shall

render or perform extra or special services of any kind, including services on

any Committee of the Board, or shall travel or reside abroad for any business

or purposes of the Company, he or she shall be entitled to receive such sum

as the Board may think fit for expenses, and also such remuneration as the

Board may think fit, either as a fixed sum or otherwise, and such

remuneration may, as the Board shall determine, be either in addition to or in

substitution for any other remuneration he or she may be entitled to receive.

Expenses The Directors shall be entitled to be paid all expenses properly incurred by

them in attending General Meetings or separate meetings of the holders of

any class of shares or meetings of the Board or Committees of the Board or

otherwise in or with a view to the performance of their duties.

Other Directors are not eligible for bonuses, share options or long-term incentive

schemes or other performance-related benefits. There are no pension

arrangements in place for the Directors of the Company.

5959Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Directors’ fee levels per annum (effective from 1 January 2022)

Component Role Fee level per annum Purpose of Remuneration

Annual fee Chairman £43,000 Commitment as Chairman

Annual fee Non-executive Director £32,250 Commitment as non- executive Director

Additional fee Chairman of the Audit

Committee

£5,250 For additional responsibilities and time

commitments

Additional fee All Directors n/a For extra or special services performed in

their role as a Director

Expenses All Directors n/a Reimbursement of expenses incurred in the

performance of duties as a Director

The Chairman of the Board is paid a higher fee than the other Directors to reflect the more onerous role.

The Chairman of the Audit Committee is paid a higher fee than the other Directors to reflect the more onerous role.

Additional fees would only be paid in exceptional circumstances in relation to the performance of extra or special services. No such fees have been paid

in the current year.

Fees are reviewed annually in accordance with the above policy. The fee for any new Director appointed to the Board

will be determined on the same basis. The Company is committed to ongoing Shareholder dialogue and any views

expressed by Shareholders on the fees being paid to Directors would be taken into consideration by the Board when

reviewing the Directors’ Remuneration Policy and in the annual review of Directors’ fees.

Compensation will not be made upon early termination of appointment.

Directors’ remuneration report

Remuneration policy (continued)

60 Annual Report and audited Financial Statements • December 202160

Strategic report • Governance • Financial • Additional information

Directors’ remuneration report

Annual report on remuneration

The report below provides Shareholders with an understanding of how the Company has implemented the

Remuneration Policy.

Directors’ remuneration (audited)

The remuneration paid to the Directors for the years ending 31 December 2021 and 31 December 2020 is set out in the

single total figure table below:

Year ended 31 December 2021 Year ended 31 December 2020

Director Fees

Taxable

benefits

Total

Fees

Taxable

benefits

Total

David Simpson 41,000 18 41,018 40,000 102 40,102

Richard Boléat 35,750 2,729 38,479 35,000 1,708 36,708

Mark Hutchinson

– – – – – –

Barbara Powley 30,750 2,145 32,895 30,000 2,974 32,974

Jane Routledge

5,716 0 5,716 – – –

113,216 4,892 118,108 105,000 4,784 109,784

All fees are at a fixed rate and there is no variable remuneration. Fees are pro-rated where a change takes place during a financial year. There were no

payments to third parties included in the fees referred to in the table above. There are no further fees to disclose as the Company has no employees, chief

executive or executive directors.

Reimbursement of expenses incurred in the performance of duties as a Director.

While a Director of the Company, Mark Hutchinson was employed by M&G as Chair of Private Assets and had agreed to waive his fee. He retired on

31 August 2021.

Jane Routledge was appointed on 25 October 2021.

6161Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Directors’ remuneration report

Company performance

The graph below compares the total return to holders of

Ordinary Shares since they were first admitted to

trading on the LSE, compared to a return of 3 Month

LIBOR +2.5% from inception to 31 December 2019,

thereafter 3 Month LIBOR +4%. LIBOR plus target rates

have been chosen for comparison purpose as these

were the dividend targets for the stated period.

14 November 2018 = 100

pence

100

105

110

115

Nov

Jun

Dec

Jun

Dec

Jun

Dec

NAV total return

Benchmark

Share price total return

Alternative performance measure. Please see pages 112 to 113 for further

information.

3 Month LIBOR +2.5% from inception to 31 December 2019, thereafter

3 Month LIBOR +4%, compounded daily.

Source: M&G

Annual report on remuneration

(continued)

Relative importance of spend on pay

The table below shows the proportion of the Company’s

income spent on pay.

for the year ended

31 December

2021

£’000

2020

£’000

Change

£’000

Spent on Directors’ fees

118 110 8

Management fee and other

expenses

1,395 1,178 217

Dividend payments

6,066 5,393 673

Costs of repurchasing

Ordinary Shares

2,829 129 2,700

As the Company has no employees, the total spent on remuneration

comprises fees and taxable benefits paid to Directors.

The items listed in the table above are as required by the Large and

Medium-sized Companies and Groups (Accounts and Reports)

(Amendment) Regulations 2013 ss.20 with the exception of the

management fee and other expenses, which have been included

because the Directors believe it will help shareholders’ understanding

of the relative importance of the amount spent on pay. The figures for

this measure are the same as those shown in notes 4 and 5 to the

Financial Statements.

Annual percentage change in Directors’

remuneration

The following table sets out the annual percentage

change in Directors’ fees for the years ending

31 December 2021 and 31 December 2022. Directors’

fees were unchanged in the period from inception to

31 December 2020.

Director % from 2021

to 2022

% from 2020

to 2021

David Simpson (Chairman) 4.9 2.5

Richard Boléat (Audit Committee

Chairman)

4.9 2.1

Barbara Powley 4.9 2.5

Jane Routledge

4.9 –

Mark Hutchinson

– –

Jane Routledge was appointed as a Director on 25 October 2021, the

percentage shown is the increase on a full-year basis.

While a Director of the Company, Mark Hutchinson was employed by

M&G as Chair of Private Assets and had agreed to waive his fee. He

retired on 31 August 2021.

62 Annual Report and audited Financial Statements • December 202162

Strategic report • Governance • Financial • Additional information

Directors’ interests (audited)

The Company’s Articles of Association do not require

a Director to own shares in the Company. The interests

of the Directors and any connected persons in the

Ordinary Shares of the Company at 31 December 2020

and 31 December 2021 are shown in the table below.

Number of

31 December

2021

Number of

31 December

2020

David Simpson 25,000 25,000

Richard Boléat 20,000 10,000

Barbara Powley

16,673 15,978

Jane Routledge

– –

The information in the above table has been audited.

Barbara Powley purchased an additional 308 shares on 11 March 2022.

Jane Routledge purchased 19,696 shares on 20 January 2022.

All of the holdings of the Directors are beneficial.

None of the Directors or any person connected with

them had a material interest in the Company’s

transactions, arrangements or agreements during the

year.

Remuneration advisors

The Company has not sought the advice or service of

any outside person in respect of consideration of

Directors’ remuneration.

Consideration of shareholders’ views

An ordinary resolution to approve the Remuneration

Report is put to shareholders at each Annual General

Meeting. Shareholders also have the opportunity to

comment on and raise any questions in respect of the

remuneration policy at the meeting. To date, no

shareholders have expressed an opinion on the

remuneration policy. Should there be a substantial vote

against any resolution proposed at the Annual General

Meeting, the reasons for the vote would be sought and

action taken. In the event that the vote was against

resolutions in relation to the Directors’ remuneration,

further details would be provided in future Directors’

Remuneration Reports.

Shareholder voting

The Directors’ Remuneration Report for the year ended

31 December 2020 and the Directors’ Remuneration

Policy were approved by shareholders at the Annual

General Meetings held on 9 June 2021 and 25 June

2020 respectively. The votes cast were as follows:

Directors’

remuneration report

Directors’

remuneration policy

Number

of votes

% of

votes cast

Number

of votes

% of

votes cast

For 58,261,018 99.97 51,299,823 100.00

Against 16,325 0.03 0 –

Total

votes cast

58,277,343 100.00 51,299,823 100.00

Number of

votes

withheld

5,198 – – –

Annual report on remuneration

(continued)

Directors’ remuneration report

6363Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Approval

On behalf of the Board and in accordance with Part 2 of

Schedule 8 of the Large and Medium-sized Companies

and Groups (Accounts and Reports) (Amendment)

Regulations 2013, I confirm that the above Report on

Remuneration Implementation summarises, as

applicable, for the year to 31 December 2021:

●

The major decisions on Directors’ remuneration.

●

Any substantial changes relating to Directors’

remuneration made during the year.

●

The context in which the changes, if any, occurred

and decisions have been taken.

The Directors’ Remuneration Report was approved by

the Board and signed on its behalf by:

Barbara Powley

Chairman of the Remuneration Committee

23 March 2021

Directors’ remuneration report

Annual report on remuneration

(continued)

64 Annual Report and audited Financial Statements • December 202164

Strategic report • Governance • Financial • Additional information

Report of the Audit Committee

I am pleased to present the Report of the Audit

Committee for the year ended 31 December 2021.

Role of the Audit Committee

The primary responsibilities of the Audit Committee are:

●

to monitor the integrity and contents of the

Company’s Half Year reports, Annual reports and

audited Financial Statements and accounting

policies, and to review compliance with regulatory

and financial reporting requirements;

●

to advise the Board, where requested, on whether

the Annual Report and audited Financial

Statements, taken as a whole, are fair, balanced

and understandable and provide the information

necessary for shareholders to assess the

Company’s position and performance, business

model and strategy;

●

to review the principal risks facing the Company

that would threaten its business model, future

performance, solvency or liquidity, and to review

the effectiveness of the Company’s internal

controls and risk management systems;

●

to assess the prospects of the Company for the

next 12 months and to consider its longer term

viability;

●

to review the Company’s internal financial controls

and review the adequacy and effectiveness of the

Company’s risk management systems;

●

to consider annually whether there is a need for the

Company to have its own internal audit function;

●

to oversee the selection process of possible new

appointees as external auditor;

●

to make recommendations to the Board in relation

to the appointment, re-appointment and removal

of the Auditor, including the approval of its

remuneration and terms of engagement;

●

to review the adequacy and scope of the external

audit;

●

to consider the independence, objectivity and

effectiveness of the Auditor and the effectiveness

of the audit; and

●

to approve any non-audit services to be provided

by the Auditor and the fees paid for such services.

Composition of the Audit

Committee and resources

All of the independent non-executive Directors of the

Company are members of the Audit Committee. I am

a Fellow of the Institute of Chartered Accountants in

England and Wales, and have more than 30 years’

financial sector and accounting experience and

therefore consider myself to have recent and relevant

financial and investment experience sufficient to chair

the Audit Committee. I consider that the Audit

Committee as a whole has competence relevant to the

investment trust sector. Details of the Committee

Members’ experience are given in the biographical

information on page 38.

As the Company has no employees, there is no

dedicated resource available to the Audit Committee.

However, representatives from the Investment Manager

are invited to attend and present on issues as required.

The Audit Committee also has direct access to

Deloitte LLP, who act as Auditor to the Company.

The Independent Auditor attends Audit Committee

meetings as required. The Audit Committee reviews,

with the Independent Auditor, the plan and scope of

the audit prior to its start, and the results after it is

concluded. At least annually, the Audit Committee

discusses any relevant matters with the Auditor privately

without the presence of the Investment Manager.

The Audit Committee is authorised to use whatever

resources are required to fulfil its duties including

seeking independent legal or other professional advice.

6565Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Report of the Audit Committee

Terms of reference

The Committee operates within defined terms of

reference which are available on the Company’s website.

Matters considered during the

year

During the year under review, the Audit Committee has

ensured the effective assessment of the Company’s

evolving risk environment, particularly given the

continued challenging effects of the COVID-19

pandemic on the market for the majority of the year with

markets recovering towards the end of the year.

Rigorous evaluation and close oversight of the

Company’s risk matrix has been undertaken together

with the Company’s internal control systems. The

Committee regularly ensures that those internal control

systems established at IPO are maintained and updated

as necessary and receives confirmations from third

party providers in this regard. In addition, the Committee

has closely assessed the Company’s ability to meet its

financial obligations over the next 12 months and the

ongoing viability of the Company, with particular regard

to the ongoing effects of COVID-19. In particular, the

Committee has given close consideration to the

forward-looking elements of the Company’s statements,

noting the changes on the horizon and being clear on

the assumptions made in regard to those.

In relation to the Company’s financial statements which

appear within the latter part of this Report, the key area

of focus has inevitably been on the valuation of those

financial instruments where there is no ready market,

which comprise a material part of the Company’s

portfolio of securities. The Committee regards as a key

duty the obtaining of ongoing comfort that the process

behind the valuation of such instruments is robust,

consistent, reliable and able to withstand external

scrutiny. This is particularly critical given the regular

publication of the Company’s net asset value, which

incorporates the output from these processes. The

Committee, after due and detailed enquiry, is satisfied

that these processes are fit for purpose.

Following the year-end audit, an in depth review of the

effectiveness of the audit process, including an

assessment of the quality of the audit, the handling of

the key judgments by the auditor, and the auditor’s

response to questions from the Committee was carried

out, the results of which are detailed on page 66 of this

report. In order to assess the year-end processes of the

Company, the views and findings of all third party

service providers involved in the processes were

discussed, considered and later presented to the

Committee.

Significant issues

The significant issues considered by the Committee in

relation to the Annual Report and audited Financial

Statements were:

1. Whether the analysis of principal risks faced by the

Company as set out in the Strategic Report

adequately captures and explains all key risks in a

manner which enables Shareholders to properly

understand the risks faced by the Company;

The determination of fair value in respect of the

Company’s assets classified as levels 2 and 3 under

the FRS102 fair value hierarchy, particularly given

the disruption to the normal functioning of markets

for asset classes in which the Company invests as a

consequence of the COVID-19 pandemic;

3. The determination of the correct level of individual

assets within the FRS102 fair value hierarchy;

4. The risk that the global economic disruption caused

by COVID-19 will affect the Company’s ability to

continue in operation due to the impact on market

valuations of portfolio companies or the ability of

key service providers (including the Manager, the

Depositary, the Custodian, the Administrator, the

Registrar and Broker) to maintain business

continuity and continue to provide appropriate

service levels; and

5. A critical review and appraisal of the form and

content of the Full Year Report to seek to ensure

that it is fair, balanced and understandable.

66 Annual Report and audited Financial Statements • December 202166

Strategic report • Governance • Financial • Additional information

Report of the Audit Committee

Audit fees and non-audit services

An audit fee of £52,000 exclusive of VAT has been

agreed in respect of the audit for the year ended

31 December 2021 (2020: £45,000 exclusive of VAT).

In accordance with the Company’s Non-Audit Services

Policy, as updated and adopted by the Company on

26 October 2020, the Audit Committee reviews the scope

and nature of all proposed non-audit services before

engagement, to ensure that auditor independence and

objectivity are safeguarded. Pursuant to the introduction

of the Revised Ethical Standard 2019, the policy includes

a ‘whitelist’ of non-audit services which may be provided

by the Auditor provided there is no apparent threat to

independence, as well as a list of services which are

prohibited.

Non-audit services are capped at 70.0% of the average

of the statutory audit for the preceding three years.

During the year ended 31 December 2021, the Auditor

provided only one non-audit service, an agreed upon

procedures on the Half Year Report for the period to

30 June 2021 for a fee of £10,500 exclusive of VAT

(2020: £10,000 exclusive of VAT).

Further information on the fees paid to the Auditor is set

out in note 5 to the Financial Statements on page 91.

Effectiveness of the external audit

The Audit Committee monitors and reviews the

effectiveness of the external audit carried out by the

Auditor, including a detailed review of the audit plan and

the audit results report, and makes recommendations to

the Board on the appointment, re-appointment,

remuneration and terms of engagement of the Auditor.

This review takes into account the experience and

tenure of the audit partner and team, the nature and

level of services provided, and confirmation that the

Auditor has complied with independence standards. Any

concerns with the effectiveness of the external audit

process would be reported to the Board.

Independence and objectivity of

the Auditor

The Committee has considered the independence and

objectivity of the Auditor and has conducted a review of

non-audit services which the Auditor has provided

during the year under review. The Committee receives an

annual assurance from the Auditor that its independence

is not compromised by the provision of such non-audit

services.

The Committee is satisfied that the Auditor’s objectivity

and independence is not impaired by the performance

of these non-audit services and that the Auditor has

fulfilled its obligations to the Company and its

shareholders.

Deloitte LLP has been the Auditor to the Company since

launch in 2018. No tender for the audit of the Company

has been undertaken. The Committee will review the

continuing appointment of the Auditor on an annual

basis and give regular consideration to the Auditor’s

fees and independence, along with matters raised

during each audit.

Appointment of the Auditor

Following consideration of the performance of the

Auditor, the services provided during the year and a

review of its independence and objectivity, the

Committee has recommended to the Board the

appointment of Deloitte LLP as Auditor to the Company.

In accordance with the requirements relating to the

appointment of auditors, the Company would need to

conduct an audit tender no later than for the financial

year beginning 1 January 2028. Even if no change is

made to the audit firm appointed, the audit partner

changes at least every five years.

6767Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Report of the Audit Committee

Internal controls and risk

management

The Board, through the Audit Committee, is responsible

for ensuring that suitable internal control systems to

prevent and detect fraud and error are designed and

implemented by the third-party service providers to the

Company and is also responsible for reviewing the

effectiveness of such controls.

The Board confirms that there is an ongoing process for

identifying, evaluating and managing the principal risks

faced by the Company in line with the FRC’s Guidance

on Risk Management, Internal Control and Related

Financial and Business Reporting published in

September 2014 and the FRC’s Guidance on Audit

Committees published in April 2016. This process has

been in place for the year under review and up to the

date of approval of this report, and accords with the

guidance.

In particular, it has reviewed and updated the process

for identifying and evaluating the significant risks

affecting the Company and policies by which these risks

are managed. The risks of any failure of such controls

are identified in a risk matrix and a schedule of key risks,

which are regularly reviewed by the Board and which

identify the likelihood and severity of the impact of such

risks and the controls in place to minimise the probability

of such risks occurring.

Where reliance is placed on third parties to manage

identified risks, those risks are matched to appropriate

controls reported in the relevant third-party service

provider’s annual report on controls. The principal risks

identified by the Board are set out in the Strategic

Report on pages 18 to 24.

The following are the key components which the

Company has in place to provide effective internal

control:

●

The Board has agreed clearly defined investment

criteria, which specify levels of authority and

exposure limits. Reports on compliance with these

criteria are regularly reviewed by the Board.

●

The Board has a procedure to ensure that the

Company can continue to be approved as an

investment company by complying with Sections

1158/1159 of the Corporation Tax Act 2010.

●

The Investment Manager and Administrator

prepare forecasts and management accounts

which allow the Board to assess the Company’s

activities and to review its performance.

●

The contractual agreements with the Investment

Manager and other third-party service providers,

and adherence to them, are regularly reviewed.

●

The services and controls at the Investment

Manager and at other third-party service providers

are reviewed at least annually.

●

The Audit Committee receives and reviews

assurance reports on the controls of all third-party

service providers, including the Administrator.

Internal control systems are designed to meet the

Company’s particular needs and the risks to which it is

exposed. They do not eliminate the risk of failure to

achieve business objectives and, by their nature, can

only provide reasonable and not absolute assurance

against misstatement or loss.

As the Company has no employees, it does not have a

whistleblowing policy and procedure in place. The

Company delegates its main functions to third-party

service providers, each of whom report on their policies

and procedures to the Audit Committee.

68 Annual Report and audited Financial Statements • December 202168

Strategic report • Governance • Financial • Additional information

Internal audit function

The Audit Committee believes that the Company does

not require an internal audit function, principally

because the Company delegates its day-to-day

operations to third parties, which are monitored by the

Committee, and which provide control reports on their

operations at least annually.

My thanks go to all the individuals who have generously

committed their time up to the publication of this report

in contributing to the successful completion of the

Committee’s work program to date. I would very much

welcome feedback from Shareholders on the form and

content of this Annual Report and audited Financial

Statements.

Richard Boléat

Chairman of the Audit Committee

23 March 2022

Report of the Audit Committee

6969Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Management report and Directors’

responsibilities statement

Management report

Listed companies are required by the FCA’s Disclosure

Guidance and Transparency Rules (the “Rules”) to

include a management report in their Financial

Statements. This information is included in the Strategic

Report on pages 7 to 37 inclusive (together with the

sections of the Annual Report and audited Financial

Statements incorporated by reference) and the

Directors’ Report on pages 39 to 43. Therefore, a

separate management report has not been included.

Statement of Directors’

responsibilities in respect of the

Annual Report and audited

Financial Statements

The Directors are responsible for preparing the Annual

Report and audited Financial Statements in accordance

with applicable law and regulations.

Company law requires the Directors to prepare financial

statements for each financial year. Under that law they

have elected to prepare the financial statements in

accordance with UK Accounting Standards, including

FRS 102 The Financial Reporting Standard applicable

in the UK and Republic of Ireland.

Under company law the Directors must not approve the

financial statements unless they are satisfied that they

give a true and fair view of the state of affairs of the

Company and of the profit or loss of the Company for

that period. In preparing these financial statements,

the Directors are required to:

●

select suitable accounting policies and then apply

them consistently;

●

make judgements and estimates that are

reasonable and prudent;

●

state whether applicable UK Accounting Standards

have been followed, subject to any material

departures disclosed and explained in the financial

statements;

●

assess the Company’s ability to continue as a going

concern, disclosing, as applicable, matters related

to going concern; and

●

use the going concern basis of accounting unless

they either intend to liquidate the Company or to

cease operations, or have no realistic alternative

but to do so.

The Directors are responsible for keeping adequate

accounting records that are sufficient to show and

explain the Company’s transactions and disclose with

reasonable accuracy at any time the financial position

of the Company and enable them to ensure that its

financial statements comply with the Companies Act

They are responsible for such internal control as

they determine is necessary to enable the preparation

of financial statements that are free from material

misstatement, whether due to fraud or error, and have

general responsibility for taking such steps as are

reasonably open to them to safeguard the assets of the

Company and to prevent and detect fraud and other

irregularities.

Under applicable law and regulations, the Directors

are also responsible for preparing a Strategic Report,

Directors’ Report, Directors’ Remuneration Report and

Corporate Governance Statement that complies with

that law and those regulations.

The Directors are responsible for the maintenance

and integrity of the corporate and financial information

included on the Company’s website. Legislation in the

UK governing the preparation and dissemination of

financial statements may differ from legislation in other

jurisdictions.

70 Annual Report and audited Financial Statements • December 202170

Strategic report • Governance • Financial • Additional information

Responsibility statement of the

Directors in respect of the annual

financial report

The Directors listed on page 111 confirm that to the best

of their knowledge:

●

the 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 of the Company taken

as a whole; and

●

the Strategic Report/Directors’ Report include

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

that they face.

The 2018 UK Corporate Governance Code also requires

Directors to ensure that the Annual Report and audited

Financial Statements are fair, balanced and

understandable. In order to reach a conclusion on this

matter, the Board has requested that the Audit

Committee advise on whether it considers that the

Annual Report and audited Financial Statements fulfil

these requirements. The process by which the Audit

Committee has reached these conclusions is set out in

the Report of the Audit Committee on pages 64 to 68.

As a result, the Board has concluded that the Annual

Report and audited Financial Statements for the year

ended 31 December 2021, taken as a whole, are fair,

balanced and understandable and provide the

information necessary for shareholders to assess the

Company’s position, performance, business model and

strategy.

On behalf of the Board

David Simpson

Chairman

23 March 2022

Management report and Directors’

responsibilities statement

71Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Independent auditor’s report to M&G Credit Income Investment Trust plc

(the “Company”)

Report on the audit of the Financial Statements

1 Opinion

In our opinion the financial statements of M&G Credit Income Investment Trust plc (the ‘Company’):

●

Give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its profit for the year

then ended;

●

Have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,

including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic

of Ireland” and the Statement of Recommended Practice issued by the Association of Investment Companies in

April 2021 “Financial Statements of Investment Trust Companies and Venture Capital Trusts”; and

●

Have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, which comprise:

●

The income statement;

●

The statement of financial position;

●

The statement of changes in equity;

●

The cash flow statement; and

●

The related notes 1 to 16.

The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom

Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the

UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice) and the Statement of

Recommended Practice issued by the Association of Investment Companies (‘SORP’) in April 2021 “Financial

Statements of Investment Trust Companies and Venture Capital Trusts”.

2 Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.

Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the

financial statements section of our report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the

financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to

listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these

requirements. The non-audit services provided to the Company for the year are disclosed in Note 5 to the financial

statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to

the Company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independent auditor’s report

727272 Annual Report and audited Financial Statements • December 202172

Strategic report • Governance • Financial • Additional information

Independent auditor’s report

3 Summary of our audit approach

Key audit matters The key audit matter that we identified in the current year was valuation and ownership of

investments (excluding derivatives).

Materiality The materiality that we used in the current year was £1.44 million which was determined

on the basis of 1% of net assets.

Scoping Audit work to respond to the risks of material misstatement was performed directly by the

audit engagement team.

Significant changes in

our approach

There has been no significant changes to our approach from the prior period.

4 Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of

accounting in the preparation of the financial statements is appropriate.

Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of

accounting included:

●

Assessing the liquidity and the ability of the Investment Manager to trade in the investment portfolio in order to

cover operational expenditure as it falls due;

●

Assessing the impact of COVID-19 considerations on the Company’s investment and the Company’s net asset

value; and

●

Assessing the appropriateness of the going concern disclosures included within the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or

conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going

concern for a period of at least twelve months from when the financial statements are authorised for issue.

In relation to the reporting on how the Company has applied the UK Corporate Governance Code, we have nothing

material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether

the Directors considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the

relevant sections of this report.

5 Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the

financial statements of the current period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the

overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our

opinion thereon, and we do not provide a separate opinion on these matters.

Report on the audit of the Financial Statements (continued)

7373Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Independent auditor’s report

5.1 Valuation and ownership of investments (excluding derivatives)

Key audit matter description The investments held by the Company (excluding derivatives), £139.5 million

(2020: £140.1 million) are key to its performance and account for the majority

of the total assets, i.e., 96.3% at 31 December 2021 (2020: 94%).

There is a risk that the investments disclosed in the financial statements may

not represent the property of the Company and/or may not be valued

appropriately. The activities of the Company’s operations are outsourced to

the administrator, State Street. Investments are key drivers to the net asset

value of the Company and materially manipulating the valuation of the

Company’s investments via applying the incorrect share price, units or shares

owned would directly affect the net asset value of the Company. Investment

management fees are directly linked to performance of the net asset value. It

follows that there is an incentive for the Investment Manager to manipulate

the net asset value as, this improves the Company’s performance, thereby

benefiting higher income for Investment Manager. The quoted investments

are valued using independent pricing sources and there is little judgement

involved.

The unquoted investments, which are classified as Level 3 within fair value

hierarchy are not traded in an active market and there is no pricing

information available from markets, therefore, the investments are valued

using alternative methods such as discounted cash flow valuations and by

reference to broker quotes, wherein judgements and assumptions (including

spread and credit rating) are used in computations.

Refer to note 1b to the financial statements for the accounting policy on

investments and details of the investments are disclosed in note 9 to the

financial statements.

Report on the audit of the Financial Statements (continued)

747474 Annual Report and audited Financial Statements • December 202174

Strategic report • Governance • Financial • Additional information

How the scope of our audit

responded to the key audit matter

For ownership of investments

We have performed the following procedures to test the ownership of the

investment portfolio at 31 December 2021:

●

Obtained an understanding of relevant controls at the administrator,

State Street, over the ownership of investments;

●

Agreed 100% of the portfolio of investments to confirmations received

directly from the State Street depositary team;

●

For direct loans recorded as investments, we have vouched a sample of

drawdowns for each loan to bank statements; and

●

Tested the recording of a sample of purchases and sales of investments

by tracing the cash movements to bank statements.

We have performed the following procedures to test the valuation of the

investment portfolio at 31 December 2021:

For valuation of quoted investments

●

Obtained an understanding of relevant controls at the administrator,

State Street, over the valuation of quoted investments;

●

Agreed the valuation of 100% of investments to the closing bid prices

published by an independent pricing source, including Bloomberg,

Thomson Reuters and Markit; and

●

Assessed the ‘depth’ (i.e. volumes traded) of the pricing source and its

implications for the levelling disclosure.

For valuation of unquoted investments

●

Obtained an understanding of relevant controls at the Company, over

the valuation of unquoted investments;

●

Obtained the Company’s discounted cash flow workings and performed

a walkthrough to understand the methodology applied;

●

Reviewed the original term sheets setting out the terms of the

agreement with the counterparty;

●

Recalculated a sample of discounted cash flow valuations and assessed

the inputs and assumptions;

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

7575Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

●

Checked whether the credit rating and credit spread at origination of

the investment have been approved by the Board, before independently

assessing the appropriateness of management’s assumptions on the

change in spread and credit rating over the period from origination to

year end;

●

Assessed the implications of model assumptions on the levelling of each

investment for the fair value hierarchy; and

●

For those investments priced with reference to broker quotes, obtained

independent evidence such as broker report.

Key observations Based on the work performed we concluded that the valuation and

ownership of investments (excluding derivatives) were appropriate.

6 Our application of materiality

6.1 Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the

economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both

in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Materiality £1.44 million (2020: £1.47 million)

Basis for determining materiality 1% (2020: 1%) of net assets

Rationale for the benchmark

applied

Net assets has been chosen as a benchmark as it is the main focus for

investors and is a key driver of shareholder value.

Source: Deloitte

Net Assets £143.76m

Materiality £1.44m

Audit Committee

reporting threshold

£0.07m

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

76 Annual Report and audited Financial Statements • December 202176

Strategic report • Governance • Financial • Additional information

6.2 Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,

uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.

Performance materiality was set at 70% of materiality for the 2021 audit (2020: 65%). We have increased our

performance materiality in current year to 70% as we no longer believe there to be an increased risk in the Company’s

operating environment caused by COVID-19, which led to us reducing performance materiality in prior year. In

determining performance materiality, we considered factors including:

●

Our risk assessment, including our assessment of the Company’s overall control environment; and

●

Our experience from previous audits, which has indicated a low number of corrected and uncorrected

misstatements identified in prior periods.

6.3 Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.07

million (2020: £0.07 million), as well as differences below that threshold that, in our view, warranted reporting on

qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing

the overall presentation of the financial statements.

7 An overview of the scope of our audit

7.1 Scoping

Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control and

assessing the risks of material misstatement through quantitative and qualitative factors relating to each account

balance, class of transactions and disclosure. Audit work to respond to the risks of material misstatement was

performed directly by the audit engagement team.

7.2 Our consideration of the control environment

As part of our risk assessment, we assessed the control environment in place at the administrator to the extent

relevant to our audit. As part of this we relied upon the controls report of the administrator and adopted a controls

reliance approach with respect to investments (valuation and ownership).

7.3 Our consideration of climate-related risks

In planning our audit, we have considered the potential impact of climate change on the Company’s business and its

financial statements. The Company continues to develop its assessment of the potential impacts of environmental,

social and governance (“ESG”) related risks as outlined on page 34. As a part of our audit, we held discussions to

understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on

the Company’s financial statements. We performed our own qualitative risk assessment of the potential impact of

climate change on the Company’s account balances and classes of transactions.

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

7777Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

8 Other information

The other information comprises the information included in the Annual

Report, other than the financial statements and our auditor’s report thereon.

The Directors are responsible for the other information contained within the

Annual Report.

Our opinion on the financial statements does not cover the other information

and, except to the extent otherwise explicitly stated in our report, we do not

express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider

whether the other information is materially inconsistent with the financial

statements or our knowledge obtained in the course of the audit, or

otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this gives rise to a

material misstatement in the financial statements themselves. If, based on

the work we have performed, we conclude that there is a material

misstatement of this other information, we are required to report that fact.

We have nothing to report in this

regard.

9 Responsibilities of Directors

As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of

the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the

Directors determine is necessary to enable the preparation of financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as

a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of

accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic

alternative but to do so.

10 Auditor’s responsibilities for the audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from

material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with

ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and

are considered material if, individually or in the aggregate, they could reasonably be expected to influence the

economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

78 Annual Report and audited Financial Statements • December 202178

Strategic report • Governance • Financial • Additional information

11 Extent to which the audit was considered capable of detecting irregularities, including

fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in

line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including

fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

11.1 Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-

compliance with laws and regulations, we considered the following:

●

The nature of the industry and sector, control environment and business performance including the design of the

Company’s remuneration policies, key drivers for remuneration, bonus levels and performance targets;

●

Results of our enquiries of the management and the Directors about their own identification and assessment of

the risks of irregularities;

●

Any matters we identified having obtained and reviewed the Company’s documentation of their policies and

procedures relating to:

●

identifying, evaluating and complying with laws and regulations and whether they were aware of any

instances of non-compliance;

●

detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or

alleged fraud;

●

the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

●

The matters discussed among the audit engagement team and relevant internal specialists including valuation

specialists regarding how and where fraud might occur in the financial statements and any potential indicators of

fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation

for fraud and identified the greatest potential for fraud in the following area: the valuation and ownership of quoted

investments. In common with all audits under ISAs (UK), we are also required to perform specific procedures to

respond to the risk of management override.

We also obtained an understanding of the legal and regulatory framework that the Company operates in, focusing on

provisions of those laws and regulations that had a direct effect on the determination of material amounts and

disclosures in the financial statements. The key laws and regulations we considered in this context included the UK

Companies Act, Listing Rules and UK tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial

statements but compliance with which may be fundamental to the Company’s ability to operate or to avoid a material

penalty. This included the requirements of the United Kingdom’s Financial Conduct Authority (FCA).

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

79Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

11.2 Audit response to risks identified

As a result of performing the above, we identified valuation and ownership of investments (excluding derivatives) as a

key audit matter related to potential risk of fraud. The key audit matters section of our report explains the matter in

more detail and also describes the specific procedures we performed in response to that key audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

●

Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance

with provisions of relevant laws and regulations described as having a direct effect on the financial statements;

●

Enquiring of management and the Audit Committee concerning actual and potential litigation and claims;

●

Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of

material misstatement due to fraud;

●

Reading minutes of meetings of those charged with governance; and

●

In addressing the risk of fraud through management override of controls, testing the appropriateness of journal

entries and other adjustments; assessing whether the judgements made in making accounting estimates are

indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual

or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team

members including internal specialists and remained alert to any indications of fraud or non-compliance with laws and

regulations throughout the audit.

Report on other legal and regulatory requirements

12 Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance

with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

●

The information given in the Strategic report and the Directors’ report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and

●

The strategic report and the Directors’ report have been prepared in accordance with applicable legal

requirements.

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the

audit, we have not identified any material misstatements in the Strategic report or the Directors’ report.

Independent auditor’s report

Report on the audit of the Financial Statements (continued)

80 Annual Report and audited Financial Statements • December 202180

Strategic report • Governance • Financial • Additional information

Independent auditor’s report

13 Corporate Governance Statement

The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and

that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK

Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the

Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained

during the audit:

●

The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting

and any material uncertainties identified set out on page 25;

●

The Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers

and why the period is appropriate set out on page 25;

●

The Directors’ statement on fair, balanced and understandable set out on pages 39 to 43;

●

The board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out

on page 18;

●

The section of the Annual Report that describes the review of effectiveness of risk management and internal

control systems set out on page 51 and

●

The section describing the work of the Audit Committee set out on page 54.

14 Matters on which we are required to report by exception

14.1 Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our

opinion:

●

We have not received all the information and explanations we require for

our audit; or

●

Adequate accounting records have not been kept, or returns adequate

for our audit have not been received from branches not visited by us; or

●

The financial statements are not in agreement with the accounting

records and returns.

We have nothing to report in

respect of these matters.

14.2 Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our

opinion certain disclosures of Directors’ remuneration have not been made or

the part of the Directors’ Remuneration Report to be audited is not in

agreement with the accounting records and returns.

We have nothing to report in

respect of these matters.

Report on other legal and regulatory requirements (continued)

81Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

15 Other matters which we are required to address

15.1 Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on

18 September 2018 to audit the financial statements for year ending 31 December 2019 and subsequent financial

periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is

three years, covering the years ending 31 December 2019 to 31 December 2021.

15.2 Consistency of the audit report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in

accordance with ISAs (UK).

16. Use of our report

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those

matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s

members as a body, for our audit work, for this report, or for the opinions we have formed.

Chris Hunter CA (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

Edinburgh

United Kingdom

23 March 2022

Independent auditor’s report

Report on other legal and regulatory requirements (continued)

828282 Annual Report and audited Financial Statements • December 202182

Strategic report • Governance • Financial • Additional information

Income statement

Year ended 31 December 2021 Year ended 31 December 2020

Note Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Net (losses)/gains on investments 9 – (545) (545) – 2,714 2,714

Net gains/(losses) on derivatives 9 – 2,837 2,837 – (1,368) (1,368)

Net currency (losses)/gains (51) (145) (196) (7) 451 444

Income 3 5,565 – 5,565 5,195 – 5,195

Investment management fee 4 (965) – (965) (714) – (714)

Other expenses 5 (548) – (548) (464) – (464)

Net return on ordinary activities before

finance costs and taxation

4,001 2,147 6,148 4,010 1,797 5,807

Finance costs 6 (122) – (122) (24) – (24)

Net return on ordinary activities before

taxation

3,879 2,147 6,026 3,986 1,797 5,783

Taxation on ordinary activities 8 – – – – – –

Net return attributable to Ordinary

Shareholders after taxation

3,879 2,147 6,026 3,986 1,797 5,783

Net return per Ordinary Share

(basic and diluted)

2 2.70p 1.49p 4.19p 2.88p 1.30p 4.18p

The total column of this statement represents the Company’s profit and loss account. The “Revenue” and “Capital”

columns represent supplementary information provided under guidance issued by the Association of Investment

Companies.

All revenue and capital items in the above statement derive from continuing operations.

The Company has no other comprehensive income and therefore the net return on ordinary activities after taxation is

also the total comprehensive income for the year.

The notes on pages 86 to 104 form an integral part of these Financial Statements.

Financial statements

8383Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Financial statements

Statement of financial position

As at 31 December 2021 As at 31 December 2020

Note £’000 £’000 £’000 £’000

Non-current assets

Investments at fair value through profit or loss 9 139,501 140,091

Current assets

Derivative financial assets held at fair value through profit or

loss

9 631 225

Receivables 10 1,241 1,345

Cash and cash equivalents 10 3,473 7,278

5,345 8,848

Current liabilities

Payables 10 (1,087) (2,311)

(1,087) (2,311)

Net current assets 4,258 6,537

Net assets 143,759 146,628

Capital and reserves

Called up share capital 11 1,447 1,447

Share premium 42,217 42,217

Special distributable reserve 95,670 98,499

Capital reserve 11 3,473 3,349

Revenue reserve 952 1,116

Total shareholders’ funds 143,759 146,628

Net Asset Value per Ordinary Share (basic and diluted) 2 101.44p 101.40p

The notes on pages 86 to 104 form an integral part of these Financial Statements.

Approved and authorised for issue by the Board of Directors on 23 March 2022 and signed on its behalf by:

David Simpson

Chairman

Company registration number: 11469317

23 March 2022

848484 Annual Report and audited Financial Statements • December 202184

Strategic report • Governance • Financial • Additional information

Financial statements

Statement of changes in equity

Year ended 31 December 2021 Called up

Ordinary

capital

premium

Special

distributable

reserve

Capital

reserve

Revenue

reserve

Total

Note £’000 £’000 £’000 £’000 £’000 £’000

Balance at 31 December 2020 1,447 42,217 98,499 3,349 1,116 146,628

Purchase of Ordinary Shares to be held in treasury – – (2,829) – – (2,829)

Net return attributable to shareholders – – – 2,147 3,879 6,026

Dividends paid 7 – – – (2,023) (4,043) (6,066)

Balance at 31 December 2021 1,447 42,217 95,670 3,473 952 143,759

Year ended 31 December 2020 Called up

Ordinary

capital

premium

Special

distributable

reserve

Capital

reserve

Revenue

reserve

Total

Note £’000 £’000 £’000 £’000 £’000 £’000

Balance at 31 December 2019 1,300 28,229 99,000 1,968 1,735 132,232

Issue of Ordinary Shares 11 147 13,945 – – – 14,092

Purchase of Ordinary Shares to be held in treasury – – (129) – – (129)

Initial public offering costs written off – 43 – – – 43

Net return attributable to shareholders – – – 1,797 3,986 5,783

Dividends paid 7 – – (372) (416) (4,605) (5,393)

Balance at 31 December 2020 1,447 42,217 98,499 3,349 1,116 146,628

The notes on pages 86 to 104 form an integral part of these Financial Statements.

85Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Financial statements

Cash flow statement

Note Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Cash flows from operating activities

Net profit before finance costs and taxation 6,148 5,807

Adjustments for:

Net losses/(gains) on investments 9 545 (2,714)

Net (gains)/losses on derivatives 9 (2,837) 1,368

Decrease/(increase) in receivables 104 (253)

Increase/(decrease) in payables 130 (96)

Purchases of investments

9 (42,088) (78,730)

Sales of investments

9 43,210 68,430

Net cash inflow/(outflow) from operating activities 5,212 (6,188)

Financing activities

Finance costs 6 (122) (24)

Issue of Ordinary Shares – 14,092

Initial public offering costs written off – 43

Purchase of Ordinary Shares to be held in treasury (2,829) (129)

Dividend paid 7 (6,066) (5,393)

Net cash (outflow)/inflow from financing activities (9,017) 8,589

(Decrease)/increase in cash and cash equivalents 10 (3,805) 2,401

Cash and cash equivalents at the start of the year 7,278 4,877

(Decrease)/increase in cash and cash equivalents as above (3,805) 2,401

Cash and cash equivalents at the end of the year 10 3,473 7,278

Receipts from the sale of, and payments to acquire investment securities have been classified as components of cash flows from operating activities

because they form part of the Company’s dealing operations.

The notes on pages 86 to 104 form an integral part of these Financial Statements.

86 Annual Report and audited Financial Statements • December 202186

Strategic report • Governance • Financial • Additional information

Financial statements

Notes to the Financial Statements

1 Significant accounting policies

The Company is a public limited company incorporated in the United Kingdom and registered in England and Wales,

with the registered office of Beaufort House, 51 New North Road, Exeter EX4 4EP.

The significant accounting policies, as set out below, have all been applied consistently throughout the year and the

preceding year.

a) Basis of accounting

The Financial Statements have been prepared on a going concern basis under the historical cost convention,

modified to include certain items at fair value, and in accordance with United Kingdom Accounting Standards,

including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United

Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the

Association of Investment Companies (‘SORP’) in April 2021 “Financial Statements of Investment Trust

Companies and Venture Capital Trusts”.

The Directors believe that the Company has adequate resources to continue in operational existence for the

foreseeable future and for at least the next 12 months from the date of approval of these financial statements. In

forming this opinion, the Directors have considered the potential impact of COVID-19 and viability of the

Company. The Directors have reviewed the liquidity of the investment portfolio, financial projections, the level of

income and expenses, and key service providers’ operational resilience in making their assessment. Further

information is given in the Viability Statement (unaudited) on pages 24 to 25 and the Going Concern Statement on

page 25.

The functional and presentational currency of the Company is pound sterling because that is the currency of the

primary economic environment in which the Company operates.

All values are recorded to nearest thousands, unless otherwise stated.

b) Financial instruments

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual

provisions of the instrument.

Financial liabilities are classified according to the substance of the contractual arrangements entered into.

Financial assets and liabilities

All financial assets and liabilities are classified as at fair value through profit or loss (FVTPL) and are initially

measured at fair value (which is normally the transaction price excluding transaction costs), unless the

arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the

financial asset or financial liability is measured at the present value of the future payments discounted at a market

rate of interest for a similar Debt Instrument.

Changes in the fair value of financial instruments held at FVTPL and gains and losses on disposal are recognised

as capital.

Financial assets and liabilities are offset in the statement of financial position only when there exists a legally

enforceable right to set off the recognised amounts and the Company intends either to settle on a net basis, or to

realise the asset and settle the liability simultaneously.

With the exception of some hedging instruments, other Debt Instruments not meeting conditions of being ‘basic’

financial instruments are measured at FVTPL.

87Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Commitments to make and receive loans that meet the conditions mentioned above are measured at cost

(which may be nil) less any impairment. They are recorded and disclosed at the date of the legal commitment and

recognised upon funding.

Financial assets are derecognised only when (a) the contractual rights to the cash flows from the financial asset

expire or are settled, (b) the Company transfers to another party substantially all of the risks and rewards of

ownership of the financial asset, or (c) the Company, despite having retained some, but not all, significant risks

and rewards of ownership, has transferred control of the asset to another party.

Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or

expires.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are

subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the

Income Statement. Derivative returns are recognised as revenue or capital depending on their nature.

Fair value measurement

The best evidence of fair value is a quoted price for an identical asset in an active market. When quoted prices

are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as

there has not been a significant change in economic circumstances or a significant lapse of time since the

transaction took place. If the market is not active and recent transactions of an identical asset on their own are

not a good estimate of fair value, the fair value is estimated by using a valuation technique.

c) Impairment of assets

Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet

date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described

below.

Non-financial assets

An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after

initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an

asset is the higher of its fair value less costs to sell and its value in use.

Where indicators exist for a decrease in impairment loss previously recognised for assets other than goodwill, the

prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired

asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the

carrying value had no impairment been recognised.

d) Tax

Current tax is accounted for at the appropriate rate of corporation tax. The tax accounting treatment follows the

principal amounts involved.

Deferred tax is recognised in respect of all timing differences between the treatment of certain items for tax and

accounting purposes that have originated but not reversed at the balance sheet date.

Due to the Company’s status as an investment trust company and the intention to continue meeting the

conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on

any capital gains and losses arising on the revaluation or disposal of investments.

Financial statements

Notes to the Financial Statements (continued)

88 Annual Report and audited Financial Statements • December 202188

Strategic report • Governance • Financial • Additional information

e) Income and expenses

Interest from Debt Instruments is recognised as revenue by reference to the coupon payable adjusted to spread

any premium or discount on purchase over its remaining life. Other interest income is recognised as revenue on an

accruals basis. Income from investment funds is recognised in revenue when the right to receive it is established.

Expenses not incidental to the purchase or sale of investments are recognised on an accruals basis and charged to

revenue. Rebate of management fees incurred by investment funds managed by M&G Alternatives Investment

Management Limited are recognised on an accruals basis as revenue or capital in accordance with the underlying

scheme’s distribution policy.

f) Finance cost

Finance costs are recognised on an accruals basis and are charged to revenue.

g) Foreign currency

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Assets and

liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange

prevailing at that date.

Other exchange differences are recognised in profit or loss in the year in which they arise.

All gains and losses on the translation of foreign currency are recognised as revenue or capital in the Income

Statement depending on the underlying nature of the transactions.

h) Cash and cash equivalents

Cash and cash equivalents are defined as cash and short-term, highly liquid investments that are readily

convertible to known amounts of cash and that are subject to insignificant risk of change in value.

They also include unfunded commitments on investments not classified under financial assets.

i) Share capital and reserves

Called up Ordinary Share capital

Called up Ordinary Share capital represents the nominal value of Ordinary Shares issued.

Share premium

Share premium represents the excess over nominal value of shares issued, net of expenses of the share issue,

except where amounts have been cancelled in accordance with Section 610 of the Companies Act 2006 and

transferred to special distributable reserve.

Special distributable reserve

Share premium of £99,000,001 was cancelled on 12 February 2019 and transferred to the special distributable

reserve, in accordance with Section 610 of the Companies Act 2006. The Company may, at the discretion of the

Board, pay all or part of any future dividends out of this special distributable reserve, taking into account the

Company’s investment objective. The costs of repurchasing Ordinary Shares has been funded by the special

distributable reserve.

Financial statements

Notes to the Financial Statements (continued)

8989Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Capital reserve

Capital reserve reflects any:

●

gains or losses on the disposal of investments;

●

exchange differences of a capital nature;

●

increases and decreases in the fair value of investments held at the year end.

This reserve can also be used for distributions by way of a dividend and for funding the cost of repurchasing

Ordinary Shares.

Revenue reserve

Revenue reserve reflects all income and expenditure which are recognised in the revenue column of the Income

Statement and is distributable by way of dividends. It can also be used for funding the cost of repurchasing

Ordinary Shares.

j) Investment management fees

Investment management fees are recognised on an accruals basis and are charged to revenue.

k) Accounting judgements, estimates and assumptions

The preparation of the Financial Statements requires the Directors to make judgements, estimates and

assumptions that affect the amounts recognised in the Financial Statements. However, uncertainty about these

judgements, assumptions and estimates could result in outcomes that could require a material adjustment to the

carrying amount of the asset or liability affected in future years.

Whilst estimates are based on best judgement using information and financial data available the actual outcome

may differ from these estimates.

No significant judgements, estimates or assumptions have been required in the preparation of the accounts for

the current year.

Financial statements

Notes to the Financial Statements (continued)

909090 Annual Report and audited Financial Statements • December 202190

Strategic report • Governance • Financial • Additional information

2 Returns and net asset value (NAV)

Year ended

31 December 2021

Year ended

31 December 2020

Revenue return

Revenue return attributable to Ordinary Shareholders (£’000) 3,879 3,986

Weighted average number of shares in issue during the year 143,757,774 138,289,698

Revenue return per Ordinary Share (basic and diluted) 2.70p 2.88p

Capital return

Capital return attributable to Ordinary Shareholders (£’000) 2,147 1,797

Weighted average number of shares in issue during the year 143,757,774 138,289,698

Capital return per Ordinary Share (basic and diluted) 1.49p 1.30p

Net return

Net return per Ordinary Share (basic and diluted) 4.19p 4.18p

NAV per Ordinary Share

Net assets attributable to Ordinary Shareholders (£’000) 143,759 146,628

Number of shares in issue at year end 141,723,022 144,605,771

NAV per Ordinary Share 101.44p 101.40p

3 Income

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Income from investments

Interest income from Debt Instruments 4,936 4,633

Distributions from investment funds 521 468

Management fee rebate 105 78

5,562 5,179

Other income

Interest from cash and cash equivalents 3 16

5,565 5,195

Financial statements

Notes to the Financial Statements (continued)

9191Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

4 Investment management fee

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Investment management fee 965 714

The amount outstanding at the year end is shown in note 10.

The basis for calculating the investment management fee is set out on page 89.

5 Other expenses

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Revenue expenses

Directors’ fees 118 110

Legal fees 5 7

Printing and postage 5 –

Registrar’s and secretarial fees 94 102

Administration fees 76 77

Broker fees 62 57

Other 113 45

473 398

Auditors’ remuneration:

– Audit services 62 54

– Non-audit services

13 12

548 464

Non-audit fees (including VAT) payable to the auditor in respect of the agreed upon procedures on the Half Year Report as of 30 June 2021 are £12,600

(30 June 2020: £12,000). The agreed upon procedures did not constitute an audit engagement or a review of the Half Year Report.

Financial statements

Notes to the Financial Statements (continued)

929292 Annual Report and audited Financial Statements • December 202192

Strategic report • Governance • Financial • Additional information

6 Finance costs

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Commitment fee 75 15

Arrangement fees 13 3

Legal fees 34 6

122 24

On 19 October 2020 the Company entered into a £25 million revolving credit facility agreement with State Street Bank

International GmbH. On 18 October 2021 the Company renewed the credit facility on the existing terms, with the new

credit facility expiring on 17 October 2022. As at 31 December 2021 no amounts were drawn down.

7 Dividends

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Revenue

2019 second interim interest distribution of 1.33p – 1,729

2020 first interim interest distribution of 0.72p – 936

2020 second interim interest distribution of 0.63p – 912

2020 third interim interest distribution of 0.71p – 1,028

2020 fourth interim interest distribution of 0.77p 1,114 –

2021 first interim interest distribution of 0.63p 911 –

2021 second interim interest distribution of 0.71p 1,017 –

2021 third interim interest distribution of 0.70p 1,001 –

4,043 4,605

Capital

2019 second interim dividend of 0.32p – 416

2020 first interim dividend of 0.13p – 169

2020 second interim dividend of 0.14p – 203

2020 fourth interim dividend of 1.18p 1,706 –

2021 first interim dividend of 0.11p 159 –

2021 second interim dividend of 0.05p 72 –

2021 third interim dividend of 0.06p 86 –

2,023 788

Financial statements

Notes to the Financial Statements (continued)

9393Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Set out below are the total dividends paid and proposed in respect of the year, which forms the basis on which the

requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered.

Year ended

31 December 2021

£’000

Year ended

31 December 2020

£’000

Interest distributions paid of 2.04p (2020: 2.06p) 2,929 2,876

Dividend distributions paid of 0.22p (2020: 0.27p) 317 372

Interest distributions declared of 0.67p (2020: 0.77p) 941 1,114

Dividend distributions declared of 1.11p (2020: 1.18p) 1,558 1,706

5,745 6,068

On 26 January 2022 the Board declared a fourth interim dividend of 1.78p per Ordinary Share for the year ended

31 December 2021, which was paid on 25 February 2022 to Ordinary Shareholders on the register on 4 February 2022.

The ex-dividend date was 3 February 2022. The amount shown in the table above for distributions declared is based

on 140,373,022 Ordinary Shares in issue.

In accordance with FRS 102, Section 32, ‘Events After the End of the Reporting Period’, the 2021 fourth interim

dividend has not been included as a liability in this set of financial statements.

8 Taxation on ordinary activities

Year ended 31 December 2021 Year ended 31 December 2020

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Foreign tax – – – – – –

The corporation tax rate was 19.0%. The tax charge for the year differs from the charge resulting from applying the

standard rate of corporation tax in the UK for an investment trust company. The differences are explained below:

Year ended 31 December 2021 Year ended 31 December 2020

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Net return on ordinary activities before

taxation

3,879 2,147 6,026 3,986 1,797 5,783

Corporation tax at standard rate of

19.0%

737 408 1,145 757 341 1,098

Effects of:

Net losses/(gains) on investments – 103 103 – (516) (516)

Net (gains)/losses on derivatives – (539) (539) – 260 260

Tax deductible interest distributions (737) – (737) (757) – (757)

Net foreign currencies losses/(gains) – 28 28 – (85) (85)

Total tax charge – – – – – –

Financial statements

Notes to the Financial Statements (continued)

949494 Annual Report and audited Financial Statements • December 202194

Strategic report • Governance • Financial • Additional information

As at 31 December 2021, the Company had unutilised management expenses of £nil (2020: £nil) carried forward. Due

to the Company’s status as an investment trust and the intention to continue to meet the conditions required to obtain

approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on

the revaluation or disposal of investments.

9 Investments held at fair value through profit or loss (FVTPL)

As at

31 December 2021

£’000

As at

31 December 2020

£’000

Opening valuation 140,316 127,316

Analysis of transactions made during the year

Purchases at cost 40,734 80,084

Sale proceeds (43,210) (68,430)

Gains on investments 2,292 1,346

Closing valuation 140,132 140,316

Closing cost 139,848 138,257

Closing investment holding gains 284 2,059

Closing valuation 140,132 140,316

The Company received £43,210,000 (2020: £68,430,000) from investments sold in the year. The book cost of these

investments when they were purchased was £41,575,000 (2020: £65,840,000). These investments have been

revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the

investments.

As at

31 December 2021

£’000

As at

31 December 2020

£’000

Gains on investments

Net (losses)/gains on disposal of investments (545) 2,714

Net gains/(losses) on derivatives 2,837 (1,368)

Gains on investments 2,292 1,346

As at

31 December 2021

£’000

As at

31 December 2020

£’000

Closing valuation

Investments at fair value through profit or loss 139,501 140,091

Derivative financial assets held at fair value through profit or loss 631 225

Closing valuation 140,132 140,316

Financial statements

Notes to the Financial Statements (continued)

9595Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

10 Receivables, cash and cash equivalents and Payables

As at

31 December 2021

£’000

As at

31 December 2020

£’000

Receivables

Accrued income 1,108 1,204

Prepaid expenses 53 41

Management fee rebate 80 82

Other receivables – 18

Total receivables 1,241 1,345

Cash and cash equivalents

Cash at bank 2,526 2,269

Amounts held at futures clearing houses 345 1,009

Cash on deposit 602 4,000

Total cash and cash equivalents 3,473 7,278

Payables

Purchases for future settlement – 1,354

Expenses payable and deferred income 314 278

Management fee payable 771 677

Other payables 2 2

Total payables 1,087 2,311

11 Called up share capital

As at 31 December 2021 As at 31 December 2020

Number of

Nominal value

£’000

Number of

Nominal value

£’000

Ordinary Shares of 1p

Ordinary Shares in issue at the beginning of the year 144,605,771 1,446 130,000,001 1,300

Ordinary Shares issued during the year – – 14,745,770 147

Purchase of Ordinary Shares held in treasury (2,882,749) (29) (140,000) (1)

Ordinary Shares in issue at the end of the year 141,723,022 1,417 144,605,771 1,446

Treasury Shares (Ordinary Shares of 1p)

Treasury Shares at the beginning of the year 140,000 1 – –

Purchase of Ordinary Shares held in treasury 2,882,749 29 140,000 1

Treasury Shares at the end of the year 3,022,749 30 140,000 1

Total Ordinary Shares in issue and in treasury at the end

of the year

144,745,771 1,447 144,745,771 1,447

Financial statements

Notes to the Financial Statements (continued)

969696 Annual Report and audited Financial Statements • December 202196

Strategic report • Governance • Financial • Additional information

The analysis of the capital reserve is as follows:

Year ended 31 December 2021 Year ended 31 December 2020

Realised

capital

reserve

£’000

Investment

holding gains

£’000

Total capital

reserve

£’000

Realised

capital

reserve

£’000

Investment

holding gains

£’000

Total capital

reserve

£’000

Capital reserve at the beginning of the year 1,290 2,059 3,349 (265) 2,233 1,968

Gains on realisation of investments at fair

value

4,067 – 4,067 1,520 – 1,520

Realised currency (losses)/gains during the

year

(145) – (145) 451 – 451

Movement in unrealised gains – (1,775) (1,775) – (174) (174)

Dividends paid (2,023) – (2,023) (416) – (416)

Capital reserve at the end of the year 3,189 284 3,473 1,290 2,059 3,349

The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice

‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, 2021.

12 Related party transactions

M&G Alternatives Investment Management Limited, as Investment Manager, is a related party to the Company. The

management fee payable to the Investment Manager for the year is disclosed in the income statement, in note 4 and

amounts outstanding at the year end are shown in note 10.

The Company holds an investment in M&G European Loan Fund which is managed by M&G Investment Management

Limited. At the year end this was valued at £17,519,827 (2020: £17,287,306) and represented 12.45% (2020: 11.98%) of

the Company’s investment portfolio.

The Directors of the Company are related parties. The details of the fees payable to Directors and details of Directors’

shareholdings are given in the Directors’ Remuneration Report on pages 60 and 62.

Financial statements

Notes to the Financial Statements (continued)

9797Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

13 Financial instruments

In pursuing the Company’s objectives, the Company accepts market price risk and interest rate risk, in relation to the

portfolio of investments. Since the Company’s investment objectives are to deliver returns over the long term,

transactions with the sole intention of realising short-term returns are not undertaken.

The quantitative data disclosed is representative of the Company’s exposure to risk throughout the year.

The AIFM attempts to gain the best and most consistent returns for clients via the following:

●

a bottom-up approach, centred around a detailed evaluation of individual investments; and

●

diversification across issuer, to minimise the impact of default.

Portfolio management decisions are based on an in-house credit assessment and instrument rating which is carried

out by the AIFM’s credit analysts.

Market risk

Market risk embodies the potential for both losses and gains and includes foreign currency risk, interest rate risk and

price risk, which are discussed in detail under separate headings within this note.

Market risk arises mainly from uncertainty about future values of financial instruments influenced by other price,

currency and interest rate movements. It represents the potential loss the Company may suffer through holding

market positions in investments in the face of market movements.

Management of market risk

The Board meets formally at least four times a year with the Investment Manager to review, inter alia, the Company’s

strategy and performance, the composition of the investment portfolio and the management of risk. The investment

management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company’s

investment objective and seeks to ensure that any investments meet an acceptable risk/reward profile.

Market risk arising from foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because

of changes in foreign exchange rates.

The fair values of the Company’s monetary items which have foreign currency exposure at 31 December 2021 are

shown below.

2021 2020

Australian

dollar

£’000

Euro

£’000

New

Zealand

dollar

£’000

US dollar

£’000

Australian

dollar

£’000

Euro

£’000

US dollar

£’000

Debtors 14 112 – 53 18 163 61

Investments 4,059 14,319 2,312 15,210 4,198 15,710 14,802

Total foreign currency exposure on net

monetary items

4,073 14,431 2,312 15,263 4,216 15,873 14,863

Financial statements

Notes to the Financial Statements (continued)

989898 Annual Report and audited Financial Statements • December 202198

Strategic report • Governance • Financial • Additional information

The Company is exposed to risks that the exchange rate of its reporting currencies relative to other currencies may

change in a manner which has an adverse effect on the value of the portion of the Company’s assets which are

denominated in currencies other than their own currencies. Typically, the fund manager will substantially hedge these

risks using foreign exchange forward contracts.

The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets

attributable to Shareholders to an increase of or decrease of 5% in exchange rates. A 5% increase in the value of the

fund’s currency exposure would have the effect of increasing the return and net assets by £1,786,000 (2020:

£1,727,000). A 5% decrease would have an equal and opposite effect.

Increase in

exchange

rates

2021

£’000

Decrease in

exchange

rates

2021

£’000

Increase in

exchange

rates

2020

£’000

Decrease in

exchange

rates

2020

£’000

Income statement

Revenue return (9) 9 (9) 9

Capital return 1,795 (1,795) 1,736 (1,736)

Total change to net return on ordinary activities after tax 1,786 (1,786) 1,727 (1,727)

Change to net assets attributable to shareholders 1,786 (1,786) 1,727 (1,727)

Market risk arising from interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of

changes in market interest rates.

The Company’s investments may be subject to interest rate risk. When interest rates decline, the value of fixed rate

obligations can be expected to rise, and conversely when interest rates rise, the value of fixed rate obligations can be

expected to decline. In general, if prevailing interest rates fall significantly below the interest rates on any Debt

Investments held by the Company, such investments are more likely to be the subject of prepayments than if prevailing

rates remain at or above the rates borne by such investments.

Since the global financial crash of 2007-08 there has been a sustained period of very low levels of central bank-set

interest rates. It is expected that central banks will raise their interest rates in the near future. For investments that

have a fixed rate of return, any such interest rate rises may negatively impact the returns on the investments and the

returns realised by the investors.

Financial statements

Notes to the Financial Statements (continued)

9999Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets

attributable to shareholders to an increase or decrease of 2% in interest rates. As at 31 December 2021 the prevailing

base rate was 0.25%. The decrease in interest rates illustrated below of 2% is reasonably possible based on

observation of market conditions and historic trends. The sensitivity analysis is based on the Company’s bond holdings

at each reporting date, with all other variables held constant.

Decrease in

interest rates

2021

£’000

Increase in

interest rates

2021

£’000

Decrease in

interest rates

2020

£’000

Increase in

interest rates

2020

£’000

Income statement

Revenue return 14 (14) 15 (15)

Capital return 2,859 (2,859) 2,947 (2,947)

Total change to net return on ordinary activities after tax 2,874 (2,874) 2,962 (2,962)

Change to net assets attributable to shareholders 2,874 (2,874) 2,962 (2,962)

Market risk arising from other price risk

Market price risk includes changes in market prices, other than those arising from interest rate risk, which may affect

the value of investments.

The following table illustrates the sensitivity of revenue and capital return on ordinary activities after tax and net assets

attributable to shareholders to an increase or decrease of 10% in the fair value of the Company’s investments. This

level of change is considered to be reasonably possible based on observation of market conditions and historic trends.

The sensitivity analysis is based on the Company’s investments at each reporting date, with all other variables held

constant.

Increase in

fair value

2021

£’000

Decrease in

fair value

2021

£’000

Increase in

fair value

2020

£’000

Decrease in

fair value

2020

£’000

Income statement

Revenue return (70) 70 (70) 70

Capital return 13,950 (13,950) 14,009 (14,009)

Total change to net return on ordinary activities after tax 13,880 (13,880) 13,939 (13,939)

Change to net assets attributable to shareholders 13,880 (13,880) 13,939 (13,939)

Financial statements

Notes to the Financial Statements (continued)

100100100 Annual Report and audited Financial Statements • December 2021100

Strategic report • Governance • Financial • Additional information

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial

liabilities. The Company invests in illiquid public and private Debt Instruments. Such investments may be difficult to

value or realise (if at all) and therefore the market price that is achievable for such investments might be lower than the

valuation of these assets and as reflected in the Company’s published NAV per Ordinary Share.

The contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can

be required are as follows:

Three months

or less

2021

£’000

Total

2021

£’000

Three months

or less

2020

£’000

Total

2020

£’000

Creditors: amounts falling due within one year

Purchases awaiting settlement – – 1,354 1,354

Other creditors 1,087 1,087 957 957

1,087 1,087 2,311 2,311

Credit risk

Credit risk is the risk that one party to a financial instrument or contract will cause a financial loss for the other party

by failing to discharge an obligation. In the case of invested assets this is the potential for the reduction in the value of

investments which relates to the risk of an issuer being unable to meet its obligations, whilst for trading activities this

relates to the risk that the counterparty to any contract the Company enters into being unable to meet its obligations

causing loss.

The Investment Manager maintains a credit risk policy and standards which set out the assessment and measurement

of credit risk, compliance with which is monitored, and exposures and breaches are reported daily by the Risk team.

The policy is reviewed on an annual basis to ensure that it remains fit for purpose and relevant to changes in the risk

environment.

Investment mandates specify explicitly the counterparty risk appetite for cash on deposit, foreign exchange and OTC

trading whilst other counterparty risk is taken for the purposes of efficient portfolio management and reduction in risk.

Financial statements

Notes to the Financial Statements (continued)

101101Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Management of counterparty risk

To mitigate counterparty risk, the AIFM follows the standards below:

●

Preference for ‘high-quality’ rated counterparties, mainly banks with short-term A1/P1 ratings and banks rated A

or better.

●

Limited exposure to each counterparty to diversify risk.

●

Collateral taken from counterparties and posted against their default where appropriate.

●

Regular monitoring of counterparty rating.

●

Capability to rapidly reduce exposure on adverse market intelligence.

●

Trading on Delivery Versus Payment (DVP) basis.

Credit risk exposure

The following amounts shown in the statement of financial position represent the maximum exposure to credit risk at

the year end.

Balance

sheet

2021

£’000

Maximum

exposure

2021

£’000

Balance

sheet

2020

£’000

Maximum

exposure

2020

£’000

Fixed assets

Investments held at fair value through profit or loss 139,501 140,321 140,091 141,602

Current assets

Other receivables 1,241 3,106 1,345 2,834

Cash and cash equivalents 3,473 6,944 7, 278 11,362

Cash at bank and in hand 144,215 150,371 148,714 155,798

No debtors are past their due date and none have been written down or deemed to be impaired.

Fair values of financial assets and financial liabilities

All financial assets and liabilities are either carried at fair value or the amount in the Statement of Financial Position is a

reasonable approximation of fair value.

Financial statements

Notes to the Financial Statements (continued)

102102102 Annual Report and audited Financial Statements • December 2021102

Strategic report • Governance • Financial • Additional information

14 Fair value hierarchy

Under FRS 102 an entity is required to classify fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in making the measurements. The fair value hierarchy shall have the levels stated

below.

●

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

●

Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates,

prepayments, credit risk, spread premium, credit ratings etc).

●

Level 3: significant unobservable inputs (including the Company’s own assumptions in determining the fair value

of investments, discounted cashflow model or single broker quote).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined

on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose,

the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement

uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level

3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires

judgement, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgement by the Company. The Company

considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and

verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.

The financial assets measured at FVTPL are grouped into the fair value hierarchy as follows:

As at 31 December 2021 As at 31 December 2020

Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Financial assets at FVTPL

Debt Instruments – 54,382 67,599 121,981 – 87,572 35,232 122,804

Investment in funds – 17,520 – 17,520 – 17,287 – 17,287

Financial liabilities at FVTPL

Derivatives (36) 667 – 631 (369) 594 – 225

Net fair value (36) 72,569 67,599 140,132 (369) 105,453 35,232 140,316

Financial statements

Notes to the Financial Statements (continued)

103103Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Notes to the Financial Statements (continued)

Valuation techniques for Level 3

The debt investments within the Company utilise a number of valuation methodologies such as a discounted cash flow

model, which will use the relevant credit spread and underlying reference instrument to calculate a discount rate.

Unobservable inputs typically include spread premiums and internal credit ratings.

Some debt instruments are valued at par and are monitored to ensure this represents fair value for these instruments.

On a monthly basis these instruments are assessed to understand whether there is any evidence of market price

movements, including impairment or any upcoming refinancing.

In addition, some are priced by a single broker quote, which is typically the traded broker, who provides an indicative

mark.

Level 3 reconciliation

The following table shows a reconciliation of all movements in fair value of financial instruments categorised within

Level 3 between the beginning and the end of the financial year:

Level 3

31 December 2021

GBP

£’000

Level 3

31 December 2020

GBP

£’000

Financial assets at FVTPL

Opening balance 35,232 16,706

Net realised losses (549) (293)

Purchases 25,320 21,313

Sales (7,47 7) (2,786)

Transfer in/(out) Level 3 15,073 292

Closing balance 67,599 35,232

During the year ended 31 December 2021, following a review of M&G’s internal guidance for fair value levelling, certain

portfolio constituents were transferred from Level 2 to Level 3 in recognition of the level of unobservable inputs that

were necessarily applied to their valuation.

Financial statements

104104104 Annual Report and audited Financial Statements • December 2021104

Strategic report • Governance • Financial • Additional information

Financial statements

15 Capital commitments

There were outstanding unfunded investment commitments of £2,866,000 (2020: £3,494,000) at the year end.

As at

31 December 2021

£’000

As at

31 December 2020

£’000

Bayswater RD Mercury Var. Rate 31 May 2024 1,862 –

Intu (SGS) Finco Limited Var. Rate 31 Mar 2024 229 –

Bayswater RD Mercury Var. Rate 1 May 2024 173 –

Kaveh Ventures LLC Var. Rate 16 May 2022 163 –

Valentine Senior Var. Rate 7 Mar 2022 133 133

Jamshid Ventures Var. Rate 23 Jul 2023 125 786

Alchemy Copyrights Var. Rate 16 Dec 2022 109 –

Bread Holdings Var. Rate 1 Sep 2028 72 –

Lewisham Var. Rate 12 Feb 2023 – 1,198

Westbourne 2016 1 WR Senior Var. Rate 30 Sep 2023 – 598

Sonovate Var. Rate 12 Apr 2021 – 560

Gate 1 Var. Rate 4 Jun 2022 (Junior) – 110

Gate 1 Var. Rate 4 Jun 2022 (Senior) – 94

Greensky Var. Rate 11 Dec 2023 – 15

2,866 3,494

16 Capital management policies and procedures

The Company’s capital management objectives are:

●

to ensure that the Company will be able to continue as a going concern; and

●

to generate a regular and attractive level of income with low asset value volatility by investing in a diversified

portfolio of public and private debt instruments.

The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings.

The Board monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review

includes:

●

the nature and planned level of gearing, which takes account of the Investment Manager’s views on the market;

●

the issue and buy back share capital within limits set by the shareholders in general meeting; and

●

the extent to which revenue in excess of that which is required to be distributed should be retained.

Notes to the Financial Statements (continued)

105Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

This document is important and requires your immediate attention. If you are in any doubt as to what action you

should take, you are recommended to seek your own financial advice from your stockbroker or other independent

adviser authorised under the Financial Services and Markets Act 2000 immediately.

If you have sold or otherwise transferred all of your shares in M&G Credit Income Investment Trust plc, please

forward this document as soon as possible to the purchaser or transferee or to the stockbroker, bank or other

agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

NOTICE IS HEREBY GIVEN that the second ANNUAL GENERAL MEETING (AGM) of M&G Credit Income Investment

Trust plc will be held at the offices of M&G Alternatives Investment Management Limited, 10 Fenchurch Avenue,

London EC3M 5AG at 11:30 am on Wednesday, 8 June 2022 to consider and vote on the resolutions below.

Resolutions 1 to 9 (inclusive) will be proposed as ordinary resolutions and resolutions 10 and 11 (inclusive) will be

proposed as special resolutions.

Ordinary business

1. To receive and, if thought fit, to accept the Strategic Report, Directors’ Report, Auditor‘s Report and the audited

Financial Statements for the year ended 31 December 2021.

To receive and approve the Directors’ Remuneration Report (excluding the Directors’ Remuneration Policy) for the

year ended 31 December 2021.

3. To approve the Company’s dividend policy that the Company intends to distribute at least 85% of its distributable

income earned each financial year by way of dividends and that, until the conclusion of the next general meeting

at which financial statements are laid before the Company, such dividends are intended to be paid quarterly.

4. To re-elect Mr David Simpson as a Director of the Company.

5. To re-elect Mr Richard Boléat as a Director of the Company.

6. To re-elect Mrs Barbara Powley as a Director of the Company.

To elect Ms Jane Routledge as a Director of the Company.

8. To appoint Deloitte LLP as Auditor to the Company, to hold office from the conclusion of this meeting until the

conclusion of the next general meeting at which financial statements are laid before the Company.

9. To authorise the Audit Committee to determine the remuneration of the Auditor of the Company.

Notice of Annual General Meeting

106 Annual Report and audited Financial Statements • December 2021106

Strategic report • Governance • Financial • Additional information

Special resolutions

10. THAT, the Company be authorised in accordance with Section 701 of the Act to make market purchases

(within the meaning of Section 693(4) of the Act) of Ordinary Shares provided that the maximum number of

Ordinary Shares authorised to be purchased will be up to 14.99% of the Ordinary Shares in issue at the date

of this Notice, excluding any treasury shares, or, if changed, 14.99% of the Ordinary Shares in issue, excluding

any treasury shares, immediately following the passing of this resolution. The minimum price which may be paid

for an Ordinary Share is £0.01. The maximum price which may be paid for an Ordinary Share must not be more

than the higher of:

●

5.0% above the average of the mid-market value of the Ordinary Shares for the five business days before

the purchase is made; or

●

the higher of the price of the last independent trade and the highest current independent bid for the

Ordinary Shares.

Such authority will expire at the AGM of the Company to be held in 2023, save that the Company may contract

to purchase Ordinary Shares under the authority thereby conferred prior to the expiry of such authority, which

contract will or may be executed wholly or partly after the expiry of such authority and may purchase Ordinary

Shares in pursuance of such contract.

This resolution revokes and replaces all unexercised authorities previously granted to the Directors to make

market purchases of Ordinary Shares.

All Ordinary Shares purchased pursuant to the above authority shall be either:

●

held, sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the

Act; or

●

cancelled immediately upon completion of the purchase.

THAT, a General Meeting, other than an AGM, may be called on not less than 14 clear days’ notice.

Registered Office:

Beaufort House, 51 New North Road

Exeter EX4 4EP

By Order of the Board of Directors

Link Company Matters Limited

Company Secretary

23 March 2022

Notice of Annual General Meeting

107Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

ADMINISTRATIVE NOTES IN CONNECTION WITH THE ANNUAL GENERAL MEETING

1. Entitlement to attend and vote

To be entitled to attend and vote at the Meeting (and for the purposes of the determination by the Company of the votes that may be cast in

accordance with Regulation 41 of the Uncertified Securities Regulations 2001), only those members registered in the Company’s register of

members at close of business on 6 June 2022 (or, if the Meeting is adjourned, close of business on the date which is two business days before

the adjourned Meeting) shall be entitled to attend and vote at the Meeting. Changes to the register of members of the Company after the

relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the Meeting.

Website giving information regarding the Meeting

Information regarding the Meeting, including the information required by Section 311A of the Act, is available from

www.mandg.co.uk/creditincomeinvestmenttrust

3. Attending in person

If you wish to attend the Meeting in person, please bring some form of identification.

Appointment of proxies

If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights

to attend, speak and vote at the Meeting. You can appoint a proxy only using the procedures set out in these notes and the notes to the proxy

form.

5. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. If you wish your proxy to speak on your

behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them.

6. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint

more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please indicate on your proxy submission

how many shares it relates to.

A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the Resolution.

If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting)

as he or she thinks fit in relation to any other matter which is put before the Meeting.

8. Appointment of proxy using hard copy proxy form

A hard copy form of proxy has not been sent to you but you can request one directly from the registrars, Link Group’s general helpline team

on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be

charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in England and

Wales. You can also request via email at [email protected] or via postal address at Link Group, PXS 1, Link Group, Central

Square, 29 Wellington Street, Leeds, LS1 4DL. In the case of a member that is a company, the proxy form must be executed under its common

seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under

which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. For the purposes

of determining the time for delivery of proxies, no account has been taken of any part of a day that is not a working day.

9. Appointment of a proxy online

You may submit your proxy electronically using the Share Portal service at www.signalshares.com Shareholders can use this service to vote

or appoint a proxy online. The same voting deadline of 48 hours (excluding non-working days) before the time of the meeting applies.

Shareholders will need to use the unique personal identification Investor Code (“IVC”) printed on your share certificate. If you need help with

voting online, please contact our Registrar, Link Group’s portal team on 0371 664 0391. Calls are charged at the standard geographic rate

and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between

09:00-17:30, Monday to Friday excluding public holidays in England and Wales. You can also email [email protected]

Notice of Annual General Meeting

108 Annual Report and audited Financial Statements • December 2021108

Strategic report • Governance • Financial • Additional information

10. Appointment of proxies through CREST

CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the

Meeting and any adjournment(s) of it by using the procedures described in the CREST Manual (available from www.euroclear.com/site/

public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting

service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their

behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction)

must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information

required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s

agent (ID: RA10) by 11.30am on 6 June 2022. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp

applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in

the manner prescribed by CREST.

CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available

special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input

of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal

member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s)

take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time.

In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular,

to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid

a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001.

Proxymity

If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform. For further information

regarding Proxymity, please go to www.proxymity.io Your proxy must be lodged by 11.30am on 6 June 2022 in order to be considered valid.

Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important

that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy.

Appointment of proxy by joint members

In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most

senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register

of members in respect of the joint holding, the first-named being the most senior.

13. Changing proxy instructions

To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off times for

receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the

relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the

instructions using another hard-copy proxy form, please contact Link Group as per the communication methods shown in note 8. If you

submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take

precedence.

Termination of proxy appointments

In order to revoke a proxy instruction, you will need to inform the Company by sending a signed hard copy notice clearly stating your intention

to revoke your proxy appointment to Link Group, at the address shown in note 8. In the case of a member that is a company, the revocation

notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company.

Any power of attorney or any other authority under which the revocation notice is signed, or a duly certified copy of such power or authority,

must be included with the revocation notice. The revocation notice must be received by Link Group no later than 48 hours before the Meeting.

If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly

below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the Meeting and voting in

person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.

15. Corporate representatives

A corporation that is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a

member provided that no more than one corporate representative exercises powers over the same share.

Notice of Annual General Meeting

109Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

Issued shares and total voting rights

As at 23 March 2022, the Company’s issued share capital (excluding 4,372,749 treasury shares) comprised 140,373,022 Ordinary Shares of

0.01p each. Each Ordinary Share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting

rights in the Company on 23 March 2022 is 140,373,022. The website referred to in note 2 will include information on the number of shares

and voting rights.

Questions at the Meeting

Under Section 319A of the Act, the Company must answer any question you ask relating to the business being dealt with at the Meeting unless:

●

answering the question would interfere unduly with the preparation for the Meeting or involve the disclosure of confidential information;

●

the answer has already been given on a website in the form of an answer to a question; or

●

it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered.

Website publication of audit concerns

Under Section 527 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section have the right to

require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s financial statements

(including the Auditor’s Report and the conduct of the audit) that are to be laid before the Meeting; or (ii) any circumstances connected with

an auditor of the Company ceasing to hold office since the previous meeting at which annual financial statements and reports were laid in

accordance with Section 437 of the Companies Act 2006 (in each case) that the shareholders propose to raise at the relevant meeting.

The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527

or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under Section 527 of the Companies

Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the

website. The business which may be dealt with at the Meeting for the relevant financial year includes any statement that the Company has

been required under Section 527 of the Companies Act 2006 to publish on a website.

19. Documents on display

Copies of the letters of appointment of the Directors of the Company and a copy of the Articles of Association of the Company will be

available for inspection at the registered office of the Company from the date of this notice until the end of the Meeting.

Notice of Annual General Meeting

110 Annual Report and audited Financial Statements • December 2021110

Strategic report • Governance • Financial • Additional information

The majority of shareholders choose to receive Annual Reports and Notices of meetings electronically. This has a

number of advantages for the Company and its shareholders. It increases the speed of communication, saves you time

and reduces print and distribution costs and our impact on the environment.

Company law requires that the Company asks shareholders to consent to the receipt of communications electronically

and via a website

. Please note that if you consent to website publication you will continue to be notified in writing and

through the release of an announcement on the London Stock Exchange each time the Company places a statutory

communication on the website. Annual Reports and other documents which are required to be sent to shareholders

(‘shareholder information’) are published on our website at www.mandg.co.uk/creditincomeinvestmenttrust If you

consent, the website will be the way in which you access all future shareholder information.

Please note that you still have the right to request hard copies of shareholder information at no charge.

●

If you would like to receive notifications by email, you can register your email address via the Share Portal

www.signalshares.com or write to FREEPOST SAS, 29 Wellington Street, LS1 4DL (no stamp or further address

detail is required). Please write in BLOCK CAPITALS.

●

If you would like to receive shareholder information by means of a website, there is nothing more you need to do.

You will be notified by post when shareholder information has been placed on the website.

●

If you would like to receive shareholder information in hard copy form, you can register your request via the Share

Portal www.signalshares.com or write to FREEPOST SAS, 29 Wellington Street, LS1 4DL (no stamp or further

address detail is required). Please write in BLOCK CAPITALS.

Please note that if you hold your shares corporately or in a CREST account, you are not able to use the Share Portal to

inform us of your preferred method of communication and should instead write to FREEPOST SAS, 29 Wellington

Street, LS1 4DL (no stamp or further address detail is required). Please write in BLOCK CAPITALS.

If we do not receive a reply from you within 28 days of the date of dispatch of this notice, you will be deemed to

have consented to website publication of shareholder information and you will not receive hard copies of

shareholder information in the post.

The Company reserves the right to send hard copy documents to shareholders where, for example, overseas securities laws do not permit electronic

communication or in other circumstances where the Company considers that electronic delivery may not be appropriate.

Additional shareholder information

Arrange to have your dividends paid direct into your bank account

This means that:

●

Your dividend reaches your bank account on the payment date.

●

It is more secure – cheques can sometimes get lost in the post.

●

You don’t have the inconvenience of depositing a cheque.

●

Helps reduce cheque fraud.

If you have a UK bank account you can sign up for this service on Signal shares (by clicking on ‘your dividend options’

and following the on screen instructions).

Shareholder communications

111Annual Report and audited Financial Statements • December 2021

Strategic report • Governance • Financial • Additional information

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