These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The Company classifies financial instruments measured at fair value in the investment portfolio according to the following hierarchy:
- Level I: Quoted prices (unadjusted) in active markets for identical instruments that the Company can access at the measurement date. Level I investments include quoted equity instruments.
- Level II: Inputs other than quoted prices included within Level I that are observable for the instrument, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level III: Inputs that are not based on observable market data. Level III investments include private equity funds, unquoted debt securities and unquoted preferred equity instruments.
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the instrument. The determination of what constitutes ‘observable’ requires significant judgement by the Company.
The Company considers observable data to be 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 following table analyses the Company’s investments measured at fair value as of 30 June 2024 by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level I £’000 | Level III £’000 | Total £’000 | |
|---|---|---|---|
Funds | – | 1,032,877 | 1,032,877 |
Quoted equity securities | 70,698 | – | 70,698 |
Unquoted debt securities | – | 6,496 | 6,496 |
Unquoted preferred equity instruments | – | 145,438 | 145,438 |
Total investments measured at fair value | 70,698 | 1,184,811 | 1,255,509 |
The following table analyses the Company’s investments measured at fair value as of 31 December 2023 by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level I £’000 | Level III £’000 | Total £’000 | |
|---|---|---|---|
Funds | – | 787,888 | 787,888 |
Quoted equity securities | 68,770 | – | 68,770 |
Unquoted debt securities | – | 6,098 | 6,098 |
| Unquoted preferred equity instruments | – | 144,450 | 144,450 |
Total investments measured at fair value | 68,770 | 938,436 | 1,007,206 |
The following table analyses the Company’s investments measured at fair value as of 30 June 2023 by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level I £’000 | Level III £’000 | Total £’000 | |
|---|---|---|---|
Funds | – | 738,085 | 738,085 |
Quoted equity securities | 30,346 | – | 30,346 |
Unquoted debt securities | – | 167,501 | 167,501 |
Total investments measured at fair value | 30,346 | 905,586 | 935,932 |
Level I
Quoted equity investment values are based on quoted market prices in active markets and are therefore classified within Level I investments. The Company does not adjust the quoted price for these investments.
Level II
The Company did not hold any Level II investments as of 30 June 2024, 31 December 2023 or 30 June 2023.
Level III
The Company has determined that Funds and unquoted debt and equity securities fall into Level III due to their lack of observable market data, which necessitates a higher degree of judgement in determining fair value. Funds and unquoted debt and equity securities are measured in accordance with the IPEV Valuation Guidelines with reference to the most appropriate information available at the time of measurement. The Consolidated Financial Statements as at period ended 30 June 2024 with comparative periods as 31 December 2023 and 30 June 2023, include Level III investments in the amount of £1,184.8 million, representing approximately 94.9% of shareholders’ equity (30 June 2023: £905.6 million, 77.5%).
Funds
The Company primarily invests in portfolio companies via the Funds as a limited partner. The Funds are unquoted equity securities. The Company’s investments in unquoted equity securities are recognised in the consolidated balance sheet at fair value, in accordance with IPEV Valuation Guidelines and IFRS 13 and are considered Level III investments.
The valuation of unquoted fund investments is based on the latest available Net Asset Value ('NAV') of the Fund as reported by the corresponding general partner or administrator, provided that the NAV has been appropriately determined using fair value principles in accordance with IFRS 13.
The NAV of a Fund is calculated after determining the fair value of that Fund’s investment in any portfolio company. The fair value is determined by the Investment Adviser by calculating the Enterprise Value ('EV') of the portfolio company and then adding excess cash and deducting financial instruments, such as external debt, ranking ahead of the Fund’s highest ranking instrument in the portfolio company.
A common method of determining the EV is to apply a market-based multiple (e.g. an average multiple based on a selection of comparable quoted companies) to the ‘maintainable’ earnings or revenues of the portfolio company. This market-based approach presumes that the comparable companies are correctly valued by the market. A discount is sometimes applied to market-based multiples to adjust for points of difference between the comparables and the company being valued.
The Company has concluded that the unlisted closed-ended investment funds in which it invests, but that it does not consolidate, meet the definition of structured entities because:
- the voting rights in the funds are not dominant rights in deciding who controls them because the rights relate to administrative tasks only;
- each fund's activities are restricted by its prospectus; and
- the funds have narrow and well-defined objectives to provide investment opportunities to investors.
The Company’s investments in Private Equity funds are considered to be unconsolidated structured entities. Their nature and purpose is to invest capital on behalf of their limited partners. The Company commits to a fixed amount of capital, which may be drawn (and returned) over the life of the fund. The Company pays capital calls when due and receives distributions from the funds once an asset has been sold. During the period, the Company did not provide financial support and has no intention of providing financial or other support to these unconsolidated structured entities.
As at 30 June 2024, the value of the Funds’ investments, other assets and liabilities attributable to the Company based on its respective percentage interest in each Fund was as follows:
Fund II €’000 | Fund III €’000 | Fund IV €’000 | Fund V €’000 | Origin I €’000 | Origin II €’000 | PROfounders Fund III €’000 | Touring I €’000 | |
|---|---|---|---|---|---|---|---|---|
Investments | 65,161 | 259,916 | 508,410 | 535,748 | 134,879 | – | 4,516 | 45,207 |
Loans | – | – | (72,920) | (225,568) | (25,801) | – | – | – |
Accrued carried interest | (1,573) | (27,896) | (29,204) | (10,521) | (6,356) | – | – | – |
Other net assets | 2,266 | 4,859 | 8,070 | 32,730 | 4,837 | 6,406 | 1,069 | 5,902 |
Total value of the Fund attributable to the Company (€’000) | 65,854 | 236,879 | 414,356 | 332,389 | 107,559 | 6,406 | 5,585 | 51,109 |
Total value of the Fund attributable to the Company (£’000) at period-end exchange rate | 55,745 | 200,524 | 350,765 | 281,376 | 91,051 | 5,423 | 4,728 | 43,265 |
As at 31 December 2023, the value of the Funds’ investments, other assets and liabilities attributable to the Company based on its respective percentage interest in each Fund was as follows:
Fund I €’000 | Fund II €’000 | Fund III €’000 | Fund IV €’000 | Fund V €’000 | Origin I €’000 | Origin II €’000 | PROfounders Fund III €’000 | Touring I €’000 | |
|---|---|---|---|---|---|---|---|---|---|
Investments | – | 61,165 | 241,803 | 456,380 | 328,901 | 94,705 | – | 2,928 | 28,469 |
Loans | – | – | – | (70,724) | (200,002) | (24,582) | – | – | – |
Accrued carried interest | – | (924) | (24,621) | (25,407) | (162) | (3,943) | – | – | – |
Other net assets | 846 | 1,497 | 2,688 | 5,435 | 18,095 | 2,636 | 3,832 | 36 | 9,701 |
Total value of the Fund attributable to the Company (€’000) | 846 | 61,738 | 219,870 | 365,684 | 146,832 | 68,816 | 3,832 | 2,964 | 38,170 |
Total value of the Fund attributable to the Company (£’000) at year-end exchange rate | 733 | 53,526 | 190,627 | 317,050 | 127,304 | 59,662 | 3,322 | 2,570 | 33,094 |
As at 30 June 2023, the value of the Funds’ investments, other assets and liabilities attributable to the Company based on its respective percentage interest in each Fund was as follows:
Fund I €’000 | Fund II €’000 | Fund III €’000 | Fund IV €’000 | Fund V €’000 | Origin I €’000 | PROfounders Fund III €’000 | Touring I €’000 | |
|---|---|---|---|---|---|---|---|---|
Investments | 29,654 | 47,279 | 252,245 | 435,523 | 251,203 | 86,971 | 2,410 | – |
Loans | – | – | – | (81,646) | (154,695) | (19,739) | – | – |
Accrued carried interest | – | – | (21,918) | (24,820) | – | (4,814) | – | – |
Other net assets | (5,314) | 2,374 | 3,951 | 9,275 | 26,965 | 6,003 | (96) | 18,318 |
Total value of the Fund attributable to the Company (€'000) | 24,340 | 49,653 | 234,278 | 338,332 | 123,473 | 68,421 | 2,314 | 18,318 |
Total value of the Fund attributable to the Company (£'000) | 20,911 | 42,656 | 201,270 | 290,666 | 106,077 | 58,781 | 1,987 | 15,737 |
The Company records its investments in the Funds at the unadjusted NAV reported by the Funds that it considers to be fair value. The NAV as reported by the Funds’ general partner or administrator is considered to be the key unobservable input as the underlying Funds are unquoted, with the underlying portfolio companies owned by the Funds which may be both quoted and unquoted companies. The Company has the following control procedures in place to evaluate whether the NAV of the underlying Fund investments represents a reliable estimate of fair value and calculated in a manner consistent with IFRS 13:
- Thorough initial due diligence processes and the Board of Directors performing ongoing monitoring procedures, primarily discussions with the Investment Adviser
- Comparison of historical realisations to last reported fair values
- Review of the quarterly financial statements and the annual audited NAV of the respective Fund
- Consider at each reporting date whether any additional market participant related fair value adjustments may be required to the reported NAV by the Funds. The Company determined that no adjustments were required as at the period end.
Unquoted debt securities
The fair value of the Company’s debt security to Time Out is derived from a discounted cash flow calculation based on expected future cash flows to be received, discounted at an appropriate rate. Expected future cash flows include interest received and principal repayment at maturity.
Unquoted preferred equity instruments
It was deemed appropriate to hold the fair value of the Company’s preferred equity instrument in North Sails holding company at par value as per the debt-to-equity conversion terms.
The preferred equity instrument will initially carry a 0% coupon increasing to 5% from January 1, 2025. In return for the reduced coupon rate, OCI obtained warrants equivalent to a 5% strip across the group, exercisable on or after June 30, 2025. Since the instrument has not accrued any coupon and the warrants cannot be exercised as at period end, the fair value of the equity instrument is deemed to be in line with its par value. The valuation approach has been supported by a weighted average of the potential outcomes for the instrument which has been reviewed by an independent third-party valuation adviser.
The warrants provide the Company with exposure to and potential equity appreciation of North Sails based on their financial performance upon exit. The fair value of the warrants is dependent on the financial performance of North Sails. The Company is exposed to counterparty risk from the potential failure of an issuer of warrants to settle its exercised warrants/or achieve its expected future earnings. The maximum risk of loss from counterparty risk to the Company is the fair value of the warrant. The Company considers the effects of counterparty risk when determining the fair value of its warrants.
Significant unobservable inputs for Level III investments
Funds
In arriving at the fair value of the unquoted Fund investments, the key input used by the Company is the NAV as provided by the general partner or administrator of the relevant Fund. The Company recognises that the NAVs of the Funds are highly sensitive to movements in the fair values of the underlying portfolio companies.
The underlying portfolio companies owned by the Funds may include both quoted and unquoted companies. Quoted portfolio companies are valued based on market prices and no unobservable inputs are used. Unquoted portfolio companies are valued by the Investment Adviser based on a market approach for which significant judgement is applied. The Company has continued to monitor the ongoing conflict between Russia and Ukraine, and the conflict in the Middle East which presents a heightened risk to companies operating in the area. The Company can confirm that it has no direct operational or financial exposure to Russia, Ukraine, Israel or Palestine.
For the purposes of sensitivity analysis, the Company considers a 10% adjustment to the fair value of the unquoted portfolio companies of the Funds as reasonable. For the period ended 30 June 2024, a 10% increase to the fair value of the unquoted portfolio companies held by the Funds would result in a 8.3% movement in net assets attributable to shareholders (31 December 2023: 9% and 30 June 2023: 8.1%). A 10% decrease to the fair value of the unquoted portfolio companies held by the Funds would have an equal and opposite effect.
Unquoted debt securities
In arriving at the fair value of the unquoted debt securities, the key inputs used by the Company are future cash flows expected to be received until maturity of the debt securities and the discount factor applied. The discount factor applied is an unobservable input of 10% plus average SONIA, considering contractual interest rates charged on debt, risk-free rate and assessment of credit risk.
For the purposes of sensitivity analysis, the Company considers a 2% adjustment to the discount factor applied as reasonable. For the period ended 30 June 2024, a 2% increase to the discount factor would result in a 0% movement in net assets attributable to shareholders (31 December 2023: 0% and 30 June 2023: 0.1%). A 2% decrease to the discount factor would have an equal and opposite effect.
Transfers between levels
There were no transfers between the levels during the periods ended 30 June 2024, 31 December 2023 or 30 June 2023.
Level I and Level III reconciliation
The changes in investments measured at fair value, for which the Company has used Level I and Level III inputs to determine fair value as of 30 June 2024 and 30 June 2023, are as follows:
Level I investments: Quoted equity securities | As at 30 June 2024 £’000 | As at 31 December 2023 £’000 | As at 30 June 2023 £’000 | ||
|---|---|---|---|---|---|
Fair value at beginning of year | 68,770 | 25,289 | 25,289 | ||
Purchases1 | – | 32,752 | – | ||
Net change in unrealised gains (losses) on investments | 1,928 | 10,729 | 5,057 | ||
| Fair value at end of period | 70,698 | 68,770 | 30,346 |
1 As a result of the liquidation of Oakley Fund I, OCI now has a direct equity holding of 38% of Time Out (previously a 37% beneficial interest through a direct and indirect holding). The shares of Time Out are listed on the London Stock Exchange. The investment in Time Out is carried at the periods ended 30 June 2024, 31 December 2023 and 30 June 2023, quoted (bid) price.
Level III investments: | Funds £’000 | Unquoted debt securities £’000 | Unquoted equity instruments £’000 | Total £’000 |
|---|---|---|---|---|
For the 6 months ended 30 June 2024: | ||||
Fair value at beginning of year | 787,888 | 6,098 | 144,450 | 938,436 |
Purchases | 200,143 | – | – | 200,143 |
Proceeds on disposals (including interest) | (3,693) | – | – | (3,693) |
Realised gain on sale | (21,425) | – | – | (21,425) |
Interest income and other fee income | – | 398 | – | 398 |
Net change in unrealised gains (losses) on investments | 69,964 | – | 988 | 70,952 |
Fair value at end of period | 1,032,877 | 6,496 | 145,438 | 1,184,811 |
Level III investments: | Funds £’000 | Unquoted debt securities £’000 | Unquoted equity instruments £’000 | Total £’000 |
|---|---|---|---|---|
For the year ended 31 December 2023: | ||||
Fair value at beginning of year | 875,774 | 159,926 | – | 1,035,700 |
Purchases | 137,266 | 21,113 | 147,136 | 305,515 |
Proceeds on disposals (including interest) | (267,742) | (176,374) | – | (444,116) |
Realised gain on sale | 181,212 | – | – | 181,212 |
Interest income and other fee income | – | 1,433 | – | 1,433 |
Net change in unrealised gains (losses) on investments | (138,622) | – | (2,686) | (141,308) |
Fair value at end of year | 787,888 | 6,098 | 144,450 | 938,436 |
Level III investments: | Funds £’000 | Unquoted debt securities £’000 | Total £’000 |
|---|---|---|---|
For the 6 months ended 30 June 2023: | |||
Fair value at beginning of year | 875,774 | 159,926 | 1,035,700 |
Purchases | 86,167 | 13,118 | 99,285 |
Proceeds on disposals (including interest) | (221,040) | (13,118) | (234,158) |
Realised gain on sale | 228,442 | – | 228,442 |
Interest income and other fee income | – | 7,575 | 7,575 |
Net change in unrealised gains (losses) on investments | (231,258) | – | (231,258) |
Fair value at end of period | 738,085 | 167,501 | 905,586 |
Other financial instruments
Financial instruments, other than financial instruments at fair value through profit and loss, where carrying values reasonably approximate fair value:
As at 30 June 2024 £’000 | As at 31 December 2023 £’000 | As at 30 June 2023 £’000 | |||
|---|---|---|---|---|---|
| Cash and cash equivalents | 127,944 | 207,155 | 295,785 | ||
| Trade and other receivables | 1,112 | 1,368 | 485 | ||
| Trade and other payables | 14,749 | (8,690) | (15,940) | ||
| Borrowings | 120,806 | (47,344) |
These financial instruments are considered to approximate fair value due to their short-term nature, nominal value alignment and limited credit risk.