Investments in Triodos Organic Growth Fund are subject to several risks, which are described in detail in the fund prospectus. Some of the risks are highlighted below.
The fund’s return will be influenced by the returns generated by the investee companies. Returns on individual investments are generated through a combination of dividend distributions from investees, growth in business value, or, in certain cases, through the partial or total sale of investments. In case of adverse business developments, dividend distributions may be negatively affected, as may be the valuation of underlying investments. In case of a major default or bankruptcy of an investee, the (expected) return may not be generated. No assurance can therefore be given that the fund’s return objectives will be achieved. Sufficient diversification of the portfolio will mitigate this risk.
Lack of appropriate investment opportunities
The fund’s return furthermore depends on the availability of appropriate investment opportunities and the ability of the fund to successfully negotiate investments in qualifying companies. In the event that there are insufficient companies to invest in, the overall return would suffer as a result of the fund holding a relatively high proportion of cash. Through a good understanding of the growing organic and sustainable consumer market, an attractive long-term professional ownership proposition to values-based companies, excellent industry-wide relationships and its Europe-wide focus, Triodos Organic Growth Fund expects to be able to secure a sufficient number of quality investments to mitigate this risk.
Triodos Organic Growth Fund has a very specific, sector-based investment focus on the organic food and sustainable consumer sector in Europe. If this market, or relevant sub-sectors, experience a downturn, this will likely have a negative impact on the performance of investees and therefore on the returns of the fund. Also, the fund will achieve only limited diversification in terms of geographies, sub-sectors and value chain segments. Consequently, the fund’s return may be negatively impacted by the performance of any particular investee, country, sub-sector or value chain segment within the overall organic and sustainable consumer market.
As Triodos Organic Growth Fund invests exclusively in assets not listed on any stock exchange or traded on a regulated market, its investments will not have readily available share prices and it may be difficult to value the fund’s equity participation in these businesses. In order to determine the value of these investments on a quarterly basis, the fund employs a consistent, transparent and appropriate valuation methodology, based on the International Private Equity and Venture Capital Valuation Guidelines (IPEV), as published by the IPEV Board and endorsed by the European Private Equity and Venture Capital Association (EVCA). As this methodology relies on periodic market-based data and peer group comparisons, the valuation of the fund’s assets will fluctuate with the variations in such data and therefore to a certain extent depends on developments in the capital markets. In addition, there is no guarantee that the valuations applied at the time of investment and subsequent quarterly valuations reflect the price at which potentially interested parties would be willing to acquire such investment.
Triodos Organic Growth Fund invests exclusively in assets that are not listed on any stock exchange or traded on a regulated market and the investments are relatively illiquid. Moreover, the fund has a long-term investment horizon and does not have a predetermined scheme for the sale of its investments. Despite the fact that the fund aims to retain 10% of its assets in cash or equivalents to cash, there is no guarantee that requested redemptions can take place at the requested date. In addition, during the first three years after the launch of the fund, redemption requests can only be honoured if the amount of new subscriptions at least equals the amount of the redemptions or the fund size does not drop to below EUR 30 million.
The fund aims to attract more investors and further grow its assets under management after its initial launch. In case the fund realises slower growth in assets under management than anticipated, this may have a negative impact on its operations and the ability to efficiently manage investments. In addition, insufficient access to new funding from investors may keep the fund from competitive bidding and therefore negatively impact the availability of appropriate investment opportunities.
Political & regulatory risks
Political developments may influence the stability of the regulatory framework for businesses generally and hence the results of the fund. Given the investment focus of the fund, the value of its investments may also be affected by uncertainties with regard to the evolution of regulations and standards applicable to the food and consumer goods sectors in general, as well as the organic and sustainable consumer sectors in particular. Unforeseen changes in domestic and international policies are also possible with regard to legal and tax legislation or regulation, the governments’ fiscal and monetary stance, currency repatriation and other economic regulations, including expropriation, nationalisation, or confiscation of assets or changes in legislation regarding the permissible share of foreign ownership of companies or assets or any other matter that may impact the fund and/or its investments.
Triodos Organic Growth Fund will generally take a non-controlling minority equity position in a company. In order to protect the interests of the fund it will negotiate certain minority protection rights as well as seek to be represented on the board of directors and/or shareholder meetings. It may, however, not always be possible to fully protect the fund’s interests in such minority investments.