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What
is the risk?
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How
is it managed?
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Current assessment of risk
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Financial Risk: The Company's
assets consist mainly of listed securities (93.6% of the investment
portfolio) and its principal and emerging financial risks are
therefore market related and include market risk (comprising
currency risk, interest rate risk and other price risk), liquidity
risk and credit risk. An explanation of those risks and how they
are managed is contained in note 18 to the Financial Statements on
pages 98 to 105.
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The Board has, in particular,
considered the impact of heightened market volatility during recent
months due to macroeconomic factors such as higher inflation and
interest rates and geopolitical concerns. In order to oversee this
risk, the Board considers at each meeting various metrics including
regional and industrial sector weightings, top and bottom stock
contributors to performance along with sales and purchases of
investments. Individual investments are discussed with the
portfolio manager together with general views on the various
investment markets and sectors. A strategy session is held
annually.
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This risk is considered
to
have increased. Although
macroeconomic risks
such as rising interest
rates have reduced, the
prospect of market
volatility
remains from
deteriorating
geopolitical stability.
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What
is the risk?
|
How
is it managed?
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|
Current assessment of risk
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Investment strategy risk: Pursuit of an investment strategy to fulfil the Company's
objective which the market perceives to be unattractive or
inappropriate, or the ineffective implementation of an attractive
or appropriate strategy, may lead to reduced returns for
shareholders and, as a result, a decreased demand for the Company's
shares. This may lead to the Company's shares trading at a widening
discount to their net asset value.
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To mitigate this risk, the Board
regularly reviews and monitors the Company's objective and
investment policy and strategy, the investment portfolio and its
performance, the level of discount/premium to net asset value at
which the shares trade and movements in the share register and
raises any matters of concern with the Managers.
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This risk is considered to be stable
as there are signs that the market's appetite for
growth stocks, typically held by the
Company, is recovering following the recent period of
heightened macroeconomic
and geopolitical
concerns.
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What
is the risk?
|
How
is it managed?
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|
Current assessment of risk
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Political and associated economic financial
risk: The Board is of the view that
political change in areas in which the Company invests or may
invest may have financial consequences for the Company.
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Political developments are closely
monitored and considered by the Board, for example in respect of
tensions between the USA and China regarding tariffs and unrest in
Hong Kong, repercussions from the Russian invasion of
Ukraine
and the Israel and Palestine
conflict. It monitors portfolio diversification by investee
companies' primary location, to mitigate against the negative
impact of military action or trade barriers. The Board believes
that the Company's portfolio, which predominantly comprises
companies listed on the stock markets of the Asia Pacific region
(excluding Japan) and the Indian Sub-continent, partially helps to
mitigate such political risks.
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This risk is seen as increasing as
deteriorating geopolitical stability increases the prospect of
trade conflict and sanctions..
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
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Discount risk: The
discount/premium at which the Company's shares trade relative to
its net asset value can change. The risk of a widening discount is
that it may undermine investor confidence in the
Company.
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To manage this risk, the Board
monitors the level of discount/premium at which the shares trade
and the Company has authority to buy back its existing shares, when
deemed by the Board to be in the best interests of the Company and
its shareholders.
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The Company's discount
remained stable during
the year.
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
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Regulatory risk: Failure to
comply with applicable legal and regulatory requirements such as
the tax rules for investment trust companies, the UK Listing Rules
and the Companies Act could lead to suspension of the Company's
Stock Exchange listing, financial penalties, a qualified audit
report or the Company being subject to tax on capital
gains.
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To mitigate this risk, Baillie
Gifford's Business Risk, Internal Audit and Compliance Departments
provide regular reports to the Audit Committee on Baillie Gifford's
monitoring programmes. Major regulatory change could impose
disproportionate compliance burdens on the Company. In such
circumstances representation is made to ensure that the special
circumstances of investment trusts are recognised. Shareholder
documents and announcements, including the Company's published
Interim and Annual Report and Financial Statements, are subject to
stringent review processes and procedures are in place to ensure
adherence to the Transparency Directive and the Market Abuse
Directive with reference to inside information.
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All control procedures are working
effectively. There have been no material regulatory changes that
have impacted the Company during the year.
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
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Custody and depositary risk: Safe custody of the Company's assets may be compromised
through control failures by the Depositary, including breaches of
cyber security.
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To mitigate this risk, the Audit
Committee receives six-monthly reports from the Depositary
confirming safe custody of the Company's assets held by the
Custodian. Cash and portfolio holdings are independently reconciled
to the Custodian's records by the Managers who also agree
uncertificated private portfolio holdings to confirmations from
investee companies. The Custodian's assured internal controls
reports are reviewed by Baillie Gifford's Business Risk Department
and a summary of the key points is reported to the Audit Committee
and any concerns investigated.
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All control procedures are working
effectively.
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Operational risk: Failure of
Baillie Gifford's systems or those of other third party service
providers could lead to an inability to provide accurate reporting
and monitoring or a misappropriation of assets.
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To mitigate this risk, Baillie
Gifford has a comprehensive business continuity plan which
facilitates continued operation of the business in the event of a
service disruption. The Audit Committee reviews Baillie Gifford's
Report on Internal Controls and reports by other key third party
providers are reviewed by Baillie Gifford on behalf of the Board
and a summary of the key points is reported to the Audit Committee
and any concerns investigated. The other key third party service
providers have not experienced significant operational difficulties
affecting their respective services to the Company.
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All control procedures are working
effectively.
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|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
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Leverage risk: The Company may
borrow money for investment purposes. If the investments fall in
value, any borrowings will magnify the impact of this loss. If
borrowing facilities are not renewed, the Company may have to sell
investments to repay borrowings. The Company can also make use of
derivative contracts.
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To mitigate this risk, all
borrowings require the prior approval of the Board and leverage
levels are discussed by the Board and Managers at every meeting.
Covenant levels are monitored regularly. The majority of the
Company's investments are in quoted securities that are readily
realisable. Further information on leverage can be found on page
113 and the Glossary of terms and Alternative Performance Measures
on pages 118 and 119 of the Annual Report and Financial
Statements.
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The Company's revolving loan
facility remains undrawn.
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
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Climate and governance risk: Perceived problems on environmental, social and governance
('ESG') matters in an investee company could lead to that company's
shares being less attractive to investors, adversely affecting its
share price, in addition to potential valuation issues arising from
any direct impact of the failure to address the ESG weakness on the
operations or management of the investee company (for example in
the event of an industrial accident or spillage). Repeated failure
by the Managers to identify ESG weaknesses in investee companies
could lead to the Company's own shares being less attractive to
investors, adversely affecting its own share price.
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This is mitigated by the Managers'
strong ESG stewardship and engagement policies which are available
to view on the Managers' website, bailliegifford.com, and which have been
reviewed and endorsed by the Company, and which have been fully
integrated into the investment process. Due diligence includes
assessment of the risks inherent in climate change (see page 49 of
the Annual Report and Financial Statements).
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The Investment Manager continues to
employ strong ESG stewardship and engagement policies.
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What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Cyber security risk: A cyber
attack on Baillie Gifford's network or that of a third party
service provider could impact the confidentiality, integrity or
availability of data and systems.
|
To mitigate this risk, the Audit
Committee reviews Reports on Internal Controls published by Baillie
Gifford and other third party service providers. Cyber security due
diligence is performed by Baillie Gifford on third party service
providers which includes a review of crisis management and business
continuity frameworks.
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All control procedures are working
effectively.
|
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What
is the risk?
|
|
|
|
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Emerging risk: As explained on
page 64 of the Annual Report and Financial Statements, the Board
has regular discussions on principal risks and uncertainties,
including any risks which are not an immediate threat but could
arise in the longer term.
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