Strategic report / Principal risks and uncertainties
Adapting to meet
OCI's evolving needs
OCI maintains a robust strategy for managing risks, which encompasses:
Maintenance of a comprehensive risk management framework including the risk appetite statement, the risk register and the risk policies and procedures.
Evaluation of emerging risks and assessing potential implications for the Company and any mitigation that can be applied.
Effective communication between our Board of Directors and the Investment Adviser through regular risk reports and discussions.
Proactive risk management
The OCI Risk Committee continues with its commitment to operate a centralised risk management framework, ensuring it evolves to meet the dynamic needs of the business and its operating environment. This approach includes identifying and evaluating emerging and incumbent risks, assessing the potential implications for OCI and shareholder value, and where relevant, enforcing mitigating measures to manage risks within defined tolerance levels. The framework is underpinned by a robust risk appetite statement, policies, procedures, and a regularly updated risk register, reviewed and approved by the OCI Risk Committee. Given OCI’s partnership with Oakley, a key driver of OCI’s success is the conscientious approach to risk management at Oakley.
Between OCI and Oakley, a coordinated effort to risk oversight is critical, and regular communication between the Board of Directors, Risk Committee, and Investment Adviser ensures informed decision-making.
Increased risk oversight
Geopolitical risks remained a significant factor in 2024, with the continuation of the Russia-Ukraine conflict disrupting energy supplies and generating cost and margin volatility, tensions in the Middle East straining international relations, and increasing concerns over the impact of China-Taiwan dynamics on European technology manufacturing reliant on Asian imports.
Despite these challenges, macroeconomic conditions continued to improve, particularly during the last six months of the year. This supported OCI’s portfolio and led to a steady deal flow in the Oakley Funds, translating to £299 million in acquisitions and £179 million in proceeds for OCI, with £175 million of look-through proceeds received in the second half of the year from the disposal of Ocean Technologies, idealista and Schülerhilfe. The Eurozone inflation eased from 2.6% in 2023 to 2.4% by the end of 2024, contributing to lowering the cost pressures. The Euribor rate decreased by 100bps during the year, enabling Oakley Funds’ portfolio companies to reduce their debt expenses. Approximately half of the portfolio companies were able to renegotiate their debt on favourable terms, improving their financial performance and providing OCI with £20 million from refinancings. The portfolio remains well-diversified with participations in more than 40 companies, with no sector or geographical region contributing more than 30% of the portfolio, resulting in tangible diversification benefits. OCI’s portfolio reflects growth in all of Oakley’s core sectors – Technology, Education, Consumer, and Business Services – bolstered by increased consumer confidence due to modest economic growth in the Eurozone, with GDP rising from 0.8% in 2023 to a projected 1.3% in 2025, and a fall in unemployment to its lowest level since the inception of the euro.
In response to these developments, OCI’s Risk Committee alongside Oakley's Risk Team continued enhancing the monitoring of the risks OCI is exposed to, with particular focus on liquidity, counterparty risk, and portfolio risks. In-depth analysis supported the decision to expand OCI's credit facility from £175 million to £225 million, equivalent to 35% of total commitments outstanding at year-end. Further analysis of liquidity risks was conducted, incorporating stress scenarios for cash flows, stressed exit values, and accelerated capital calls. Credit quality was also reviewed across portfolio, fund and OCI lenders to assess potential contagion risks and leverage opportunities arising from reduced debt costs. Valuation risks were addressed through rigorous oversight by the Audit Committee, Oakley's valuation committee and external valuation experts, ensuring consistency and reliability in financial reporting.
Operational excellence remains a priority, with the Risk Committee completing a comprehensive review of the risk register and driving improvements to the central governance, risk, and compliance tool. The scope of risk assessments was expanded to include enhanced reporting on environmental, social, and governance risks. These efforts have provided the Board with improved visibility into emerging risks and greater oversight of control effectiveness, ensuring that OCI is well-positioned to navigate future challenges while safeguarding shareholder value.
Our risk map
Key risks
0
PR1 Liquidity risk
PR2 Portfolio risk
PR3 Counterparty risk
Other core risks
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OR4 Performance risk
OR5 Operational risk
OR6 Sustainability risk
OR7 Reputational risk
Key risks
1
Liquidity risk
Potential impact Liquidity risk refers to the potential inability of OCI to meet its commitments to the Oakley Funds, an inability to pay annual dividends, or to manage capital effectively, which consequently may impact the share price and decrease returns for shareholders.
Risk tolerance
0 2023
0 2024
Mitigation
The Board closely monitors cash flow forecasts and reviews regular stress tests, including different scenarios to reflect the cash position under positive and stressed conditions such as accelerated capital calls, reduced or delayed distributions with its overall capital management position.
Strategic positioning for the upcoming year
As macroeconomic conditions began to improve, OCI’s deal flow followed suit, resulting in £179 million of distributions during the year – £175 million of which occurred during the second half of 2024 – thereby strengthening the cash position and reducing liquidity risks. At the year-end OCI has £225 million of cash and available credit facility and outstanding commitments of £646 million, of which at least £200 million is not anticipated to be drawn. Economic conditions show signs of improvement in 2025 but outlook remains uncertain. The OCI Risk Committee and the Board remain committed to considering liquidity options to ensure financial flexibility around the deployment of capital.
2
Portfolio risk
Potential impact Portfolio risk principally focuses on valuation risk and concentration risk. Valuation risk looks at the risk of a decline in the valuation of privately held assets, resulting principally from a reduction in comparative multiples in the market or from underperformance of the assets or sector. Concentration risk arises from overexposure to a particular investment strategy, sector, geography and/or currency.
Risk tolerance
0 2023
0 2024
Mitigation
Oakley portfolio company valuations follow a structured quarterly process. The Oakley Valuations Team prepares the valuations, which are reviewed by an Investment Team partner or managing director, and the Finance Team, and then submitted to the Oakley Valuations Review Committee (‘VRC’) for approval. After the VRC approves, the Alternative Investment Fund Manager (‘AIFM’) Valuations Review Committee, reviews and provides final approval. Additionally, a professional services firm provides an independent valuation of each portfolio company annually, offering a range of valuations that support Oakley’s figures. The external auditor subsequently audits the Oakley valuations performing their own valuation work, as well as considering the external independent valuation, and ultimately presents their conclusions to the Audit Committee, reinforcing transparency, independence, and consistency.
The Audit Committee and OCI Board actively monitors valuation results, the performance of portfolio companies, considering broader sector or macro-economic factors in its oversight of the valuation process.
Metrics are established and monitored to gauge investment concentration based on company, sector and geographical exposure. The OCI Board receives a quarterly risk report from Oakley with OCI concentration metrics, considering both acquisition cost and the most recent NAV. As the portfolio grows, concentration risk continue trading downwards. At year-end, the top ten holdings in the portfolio accounted for 61% of NAV, down from the last years’ high point of 75% in 2023, while sector and geographic exposure each fell to no more than 30% of NAV, down from 40% in 2023 – together reflecting greater portfolio diversification.
Strategic positioning for the upcoming year
As OCI diversifies further, its exposures across the Oakley Funds' vintages and strategies, the concentration risk to specific sectors and portfolio companies is reduced. The portfolio continues to generate positive returns for OCI, driven by portfolio companies’ robust performances, reflected in earnings growth and EBITDA generation, leading to an overall increase in valuations. The exit market in late 2024 showed improved activity compared to 2023, resulting in proceeds of £179 million consisting of £159 million from exits and £20 million from refinancings. Momentum should continue if the positive environment of decreasing interest rates and increasing global growth continues.
After obtaining an independent opinion on the value of North Sails' equity, OCI converted $107 million of its preferred equity position into ordinary equity. This conversion aimed to enhance participation in North Sails’ future returns.
3
Counterparty risk
Potential impact This risk refers to the possibility that a counterparty in a financial transaction may default on its contractual obligations. It arises from OCI’s exposure and reliance on lending institutions. OCI’s risk exposure is categorised into three levels: direct counterparties, counterparties at the Oakley Fund level, and counterparties associated with portfolio companies.
Risk tolerance
0 2023
0 2024
Mitigation
During 2023 and 2024, the Oakley Group significantly diversified and improved its key credit relationships. This diversification included improved credit ratings, geographical distribution, and bank sizes. A detailed assessment of core capabilities and ancillary services provided by these institutions was conducted, leading to a reshaped banking strategy. This included a focus on scenario planning to address potential scenarios where a bank may be unable to fulfil its contractual obligations.
A bottom-up evaluation of the banking partnerships across our portfolio companies was also undertaken. This review re-evaluated key banking relationships, identified commonalities across the portfolio, and benchmarked debt rates. The analysis resulted in refinancings for half of the Funds’ portfolio companies and distributed £20 million to OCI, yielding significant financial benefits for the portfolio and maintaining the low leverage model, with an average net debt multiple of 4x across the portfolio.
Strategic positioning for the upcoming year
The ongoing trend and efforts to diversify banking relationships are expected to continue in the future. Additionally, the evaluation and adoption of new credit and foreign exchange products aimed at reducing OCI’s exposure to single entities and increasing the long-term certainty of debt support are anticipated to continue, further enhancing risk mitigation strategies.
Other core risks
4
Performance risk
Potential impact This represents the risk of returns to OCI’s shareholders underperforming against the market and peers, with the potential impact of reduction in share price, reduced share liquidity and reputational damage.
Risk tolerance
0 2023
0 2024
Mitigation
Quarterly reporting of NAV, coupled with transparent communication regarding business progress, is designed to fully inform investors, potential investors, and the wider market. Confidence in OCI’s NAV is established through Oakley’s robust valuation process, including the AIFM, the external audit, and additional third-party review, with valuations produced for each investment. OCI engaged an independent opinion in respect of the conversion of $107 million of its preferred equity position into ordinary equity on 18 December 2024.
Strategic positioning for the upcoming year
NAV grew to £1,226m at year end, with NAV per share increasing from 684 pence to 695 pence. The Total NAV Return per share for 2024 including dividends was 2%, or 6% excluding the impact of foreign exchange.
The Board continues to assess and monitor portfolio company performance, the origination capabilities of the adviser, and opportunities to enhance future returns from the existing portfolio of direct and fund investments. The Risk Committee continues supporting the Board in driving shareholder value whilst managing the performance risk through capital allocation to Oakley Funds, as well as, evaluating share buybacks, dividends and other capital management levers.
5
Operational risk
Potential impact OCI outsources administrative, advisory, finance and operational functions to the Oakley Group. Consequently, inadequate or failed internal processes could expose OCI to operational, regulatory and reputational risks with potential financial consequences.
Risk tolerance
0 2023
0 2024
Mitigation
The Board regularly engages with Oakley via the Management Engagement Committee to assess the quality and price of the services it receives from Oakley. The Audit Committee also plays an active part in reviewing controls and processes. The Risk Committee receives a quarterly report on administrative, advisory, and operational matters as well as risk controls and a periodic compliance report. When emerging risks appear, ad-hoc reports are presented to the Board.
Over the past two years, the Oakley Capital Group has proactively engaged with third-party advisers to obtain independent verification of the control framework’s robustness, determine the completeness of the updated risk register, and gather feedback on the Governance, Risk, and Compliance (GRC) tool’s development road map.
Strategic positioning for the upcoming year
The commitment to operational excellence remains a priority for OCI. Oakley continues to engage with third-party advisers for operational risk assessments, integrating insights from previous reviews and focusing on control quality and residual risk analysis to ensure that all identified risks remain within established risk appetite thresholds.
As Oakley Group’s business continues to expand with the launch of new funds, Oakley remains committed in its reporting quality to OCI, ensuring that the Board of Directors continues to have the right information to interrogate in support of accurate and timely decision-making, with an emphasis on control effectiveness and emerging risks.
6
Sustainability risk
Potential impact Failure to integrate sustainability themes into investment strategy and operating models could result in sustainability, reputational and performance risks.
Risk tolerance
0 2023
0 2024
Mitigation
The Board notes the progress of sustainability initiatives implemented across the Oakley Group and portfolio companies and continues to monitor their effectiveness through the different committees. Particular focus is placed on carbon footprint measurement and reduction, equity, diversity, and inclusion, and cybersecurity insurance and incident response protocols.
The Investment Adviser integrates sustainability considerations throughout the investment cycle. Sustainability due diligence on potential portfolio companies is conducted as part of the pre-closing process, and findings are presented to the Oakley Investment Committee, enabling an ex-ante assessment of potential sustainability risks across the portfolio.
The Board also participated in internal and external training sessions covering a broad range of sustainability topics, ensuring that it remains informed of market and regulatory developments and is prepared to respond accordingly.
Strategic positioning for the upcoming year
Sustainability will remain a key focus throughout 2025, both by the Board and through its relationship with Oakley. The Oakley Group will continue to support portfolio companies’ management teams with the guidance, knowledge, and tools needed to identify and manage sustainability-related risks and opportunities, ensuring that investments align with long-term interests.
OCI fully supports Oakley’s commitment to integrate sustainability into its investment strategy. The sustainability progress achieved in 2024 on energy and climate change will extend into 2025 as Oakley continues to develop its climate approach, guided by the TCFD report findings as a basis for ongoing improvements. Emphasis on EDI remains a priority as the Oakley team composition evolved from 37% women to near parity at c.48% at year-end. Oakley continues to focus on developing leadership talent, fair management and fostering an inclusive culture. In parallel, recommendations from the third-party cybersecurity analysis will be rolled out in 2025, focusing on implementing best practices across portfolio companies and strengthening systems to remain resilient to evolving threats.
7
Reputational risk
Potential impact Adverse media coverage, ineffective market communication, or negative investor feedback could impact OCI’s reputation, potentially affecting fundraising efforts and stakeholder relationships.
Risk tolerance
0 2023
0 2024
Mitigation
OCI engages with third-party PR agencies and Oakley’s Investor Relations team to manage external communications and monitor reputational risks. As a listed entity, OCI follows a structured financial reporting calendar, providing regular updates via Regulatory News Services (RNS), including transaction announcements. All disclosures are approved by the Board of Directors, having previously being reviewed by Oakley’s Investor Relations team, Fund Finance, senior management, and external advisers, including OCI’s broker and PR adviser. Post-publication, media coverage is monitored to ensure accurate representation.
Investor communication is further supported through transparent reporting, regular shareholder engagement, reports prepared by the Adviser’s investor relations team, and the Annual Capital Markets Day, ensuring clarity and consistency in disclosures.
Strategic positioning for the upcoming year
OCI remains committed to maintaining strong market confidence through transparent and consistent communication with investors and stakeholders. Clear disclosures, regular financial updates via RNS, and proactive investor engagement through shareholder outreach, including the Annual Capital Markets Day and the Adviser’s investor’s relationships interactions with the Board of OCI and investors, will continue to reinforce trust and alignment with shareholders by delivering timely and relevant updates while maintaining consistency in how OCI’s performance and positioning are presented. Strengthened engagement with media and stakeholders will further support clarity and confidence in OCI’s market presence.
By maintaining an open dialogue with the market and shareholders, the OCI Board aims to enhance investor confidence, support long-term value creation, and strengthen its reputation as a disciplined and well-managed investment company.
Emerging risks
New government agendas US and UK and global taxation
2024 was characterised by the wave of elections accounting for nearly 60% of global GDP. Financial markets demonstrated steady growth but erratic behaviour due to uncertainties surrounding election outcomes and the associated political agendas.
The US election in November 2024 is clearly a significant catalyst for global change in the coming year and the Risk Committee identifies it as a development for 2025. The election resulted in the Republican Party assuming administration across all three pillars of the US legislature for the next four years. Their stated economic and political agenda includes tax reductions, energy independence, and regulatory rollbacks, which are expected to benefit the Oakley Funds’ portfolio companies by lowering the cost base of running their businesses. However, policies promoting trade protectionism and tariff imposition may hinder global growth by inducing inflation and contribute to political instability due to potential trade retaliation.
Global interest rates, inflation, and foreign exchange (FX) trends remain uncertain. Interest rates decreased by an average of 100 basis points in 2024, and inflation expectations moved by -0.3% during the second half of 2024. While some policies, such as tariffs and tax cuts, may drive inflation through higher prices and increased consumption, others, like regulatory rollbacks and energy independence, could lower business cost bases, enhancing returns for the Oakley Funds. The International Monetary Fund forecasts inflation to be 4.5% in 2025, falling from 5.9% in 2024, and it is expected that the central banks will continue lowering the interest rates gradually.
Foreign exchange markets are anticipated to experience heightened volatility over the coming years with an appreciation of the US dollar against the major currencies. The Risk Committee has actively assessed the potential effects of interest rate and FX volatility on the funds in which OCI invests. The blended portfolio leverage of the Oakley Funds at an average of 4x, with all material debt positions hedged, will ensure low exposure to interest rate risks.
FX risks have been mitigated through the active use of fund facilities as natural hedges, alongside an increase in the fair value of non-EUR denominated assets. These measures have substantially reduced OCI’s indirect FX exposure, positioning the portfolio to weather potential volatility in global currency markets.
The UK Labour Government’s 2024 Budget, which was announced on 30 October 2024, has introduced significant changes affecting private equity and the broader investment environment. Among the most notable is the increase in the capital gains tax rate from 20% to 24%, which is likely to impact both investment in OCI and general PE fundraising efforts in the UK. This risk will continue to be closely monitored throughout 2025/2026.
Another emerging risk being closely monitored is the forthcoming introduction of a 20% VAT on private school fees, effective January 2025. This measure is expected to increase the cost of private education for families, potentially impacting demand and affordability within the sector. However, while the education sector constituted 19% of OCI’s portfolio at year-end, the portfolio companies directly affected represent less than 2% of OCI’s NAV, thereby mitigating initial concerns.
Since the UK general election on 4 July 2024, many fiscal changes have been widely anticipated. A comprehensive analysis has been undertaken to assess the potential impact of these measures on OCI’s investment portfolio, alongside broader economic challenges such as uncertainty in inflation trends, a potential reversal in capital flows to private equity investments, and slower growth prospects across key regions. As a pan-euro investor, OCI has also factored in evolving European security concerns. Concurrently, growth forecasts for Europe have been revised downward—from an anticipated 2.5% to around 1.8%—reflecting insights from the European Commission’s Economic Outlook . In response, the Investment Adviser has developed multiple scenarios, adjusted for varying inflation trends and shifting market dynamics, to be integrated into the investment thesis and Oakley’s scenario analysis. This proactive and strategic approach ensures that OCI is well-prepared to navigate fiscal shifts and broader economic uncertainties.
The Pillar 2 Global Minimum Tax ('GloBE') rules, which take effect on 1 January 2025 requiring companies with consolidated revenues exceeding EUR 750 million to maintain a minimum effective tax rate of 15%. OCI is not expected to fall within the scope of this regime. Nonetheless, this new framework may have implications for the private equity industry by affecting fund performance, tax filings, and regulatory complexity. OCI remains vigilant regarding market participants' responses and monitors any solutions they may adopt to address these challenges.
Geopolitical risks
The geopolitical risks that shaped 2023 persisted through 2024 and are expected to extend into 2025, with the conflict in Ukraine still ongoing. At the end of 2024, the conflict continued to pose risks to energy and trade markets. However, the expectation continues to be that there will be no material impact for the Oakley Funds, which has been the experience over the past two years.
Recent developments in the Middle East, such as the Gaza ceasefire negotiations, the release of hostages, and diplomatic engagements between Israel and the US, appear to have eased tensions. However, the truce remains fragile due to the entrenched nature of the conflict, the complex situation in the West Bank, and strained relations among Syria, Lebanon, and Israel, alongside Turkey's emerging role in the region. While the Oakley Funds remain insulated from direct impacts, OCI will continue to monitor the broader economic implications and any shifts in foreign policy.
The newly elected US administration is advancing policies to impose tariffs as a means of regulating global trade. At the start of 2025, negotiations are under way to introduce a 25% tariff on most goods from Mexico and Canada, alongside a 10% tariff on all Chinese imports. This move is particularly significant given the ongoing tensions in US-China relations, notably over Taiwanese sovereignty, which could see additional tariffs spark further trade conflicts.
These measures have the potential to disrupt global supply chains and create uncertainty, especially in sectors such as Technology, Business Services, and Consumer Goods that rely heavily on Asian imports.
Looking ahead, longer-term risks include potential climate-related resource shortages and increased competition for critical minerals essential to energy transitions. Moreover, the elevated threat of state-sponsored cyber-attacks targeting critical infrastructure and national security assets remains a concern, posing risks to global operational resilience.
OCI together with Oakley continue to be committed to accurate assessment and monitoring of these risks, focusing on mitigating or avoiding any material exposures and adapting strategies to ensure portfolio resilience in an increasingly uncertain geopolitical environment.