|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Investment strategy risk: Pursuing 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.
|
To mitigate this risk, the Board
regularly reviews and monitors: the Company's objective and
investment policy and strategy; the investment portfolio and its
absolute and relative 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.
|
|
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.
|
|
What is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Financial Risk: The Company's
assets consist mainly of listed securities 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 19 to the
Financial Statements.
|
In order to oversee this risk, the
Board considers at each meeting various metrics including the
composition and diversification of the portfolio by geography,
industry, growth category and holding size along with sales and
purchases of investments. Individual investments are discussed with
the portfolio managers together with their general views on the
various investment markets and sectors. A strategy meeting is held
annually. The Board has, in particular, considered the impact of
heightened market volatility
owing to macroeconomic and
geopolitical concerns. The value of the Company's investment
portfolio would be affected by any impact, positively or
negatively, on sterling but such impact would be partially offset
by the effect of exchange rate
movements on the Company's euro and
yen denominated borrowings.
|
|
This risk is considered to be high
but unchanged as a result of heightened macroeconomic and
geopolitical concerns which continue to create a challenging
environment for businesses, but with some signs that interest rate
pressures, for example, may be starting to recede.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
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.
|
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 or
issue shares (including authority to sell shares held in treasury),
when deemed by the Board to be in the best interests of the Company
and its shareholders.
|
|
The Company's discount remained
relatively steady during the year. The Company has been buying back
shares for treasury since January 2022 and shareholder feedback
indicates that this has been a welcome strategy to maintain
liquidity in the Company's shares.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Political and associated economic risk:
Political change in areas in which the Company
invests or may invest may increasingly have practical consequences
for the Company.
|
To mitigate this risk, developments
are closely monitored and considered by the Board. The Board has
particular regard to macroeconomic and geopolitical tensions and
monitors portfolio diversification by revenue stream where
appropriate, as well as by investee companies' primary location and
considers the potential for negative impacts arising from military
action, trade barriers or other political factors.
|
|
This risk is increasing as
governments and consumers around the world continue to assess the
impact of heightened
geopolitical tensions and conflicts
as well as challenging macroeconomic conditions.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
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.
|
This is mitigated by the Managers'
strong ESG stewardship and engagement policies, which have been
endorsed by the Company, and which are fully integrated into the
investment process. Further details of the Managers' approach are
set out on the Managers' website bailliegifford.com/esg. The Directors
have considered the impact of climate change on the Financial
Statements of the Company and this is included in note 1a to the
Financial
Statements.
|
|
The Managers continue to embed
analysis of ESG factors within the investment process. Although
climate activists have recently targeted the Managers' sponsorship
of cultural events, media coverage has been balanced and has
largely recognised that the objective is not to seek perfection but
to focus on materiality and the direction of travel, with the
understanding that engagement can encourage responsibility and
meaningful change.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Regulatory risk: Failure to
comply with applicable legal and regulatory requirements such as
the tax rules for investment trust companies, the FCA Listing rules
and the Companies Act could lead to the Company being subject to
tax on capital gains, suspension of the Company's Stock Exchange
listing, financial penalties or a qualified audit report. Changes
to the regulatory environment could negatively impact the
Company.
|
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. Should major regulatory change seem likely
to impose disproportionate compliance burdens on the Company,
representations are made to the relevant authorities 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.
|
|
All control procedures are working
effectively. There have been no material regulatory changes that
have impacted the Company during the year.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
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.
|
To mitigate this risk, the Board
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 unlisted
portfolio holdings to confirmations from investee companies. In
addition, the
existence of assets is subject to
annual external audit and 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.
|
|
All control procedures are working
effectively.
|
|
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.
|
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 or major disaster. The Audit Committee reviews
Baillie Gifford's Report on Internal Controls and the 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 key third
party service providers have not experienced significant
operational difficulties affecting their respective services to the
Company.
|
|
All control procedures are working
effectively.
|
|
What
is the risk?
|
How
is it managed?
|
|
Current assessment of risk
|
|
Leverage risk: The Company may
borrow money for investment purposes (sometimes known as 'gearing'
or 'leverage'). 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,
although it does not currently do so. The use of such contracts may
have a gearing effect so as to enhance, or worsen, returns relative
to the amount invested in this way.
|
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. Details of the Company's current
borrowing facilities and drawings can be found in notes 11 and 12
of the Financial Statements. The majority of the Company's
investments are in quoted securities that are readily realisable.
Further information on leverage can be found on page 114 of the
Annual Report and Financial Statements and in the Glossary of terms
and Alternative Performance Measures.
|
|
No significant change in risk level.
The Company secured four new tranches of medium-term private
placement loan notes during the year, allowing it to lower its use
of the higher-cost revolving credit facility.
|
|
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. Baillie Gifford's
Business Risk Department report to the Audit Committee on the
effectiveness of information security controls in place at Baillie
Gifford and its business continuity framework. 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.
|
|
This risk is seen as increasing due
to recent indications that the continuation of geopolitical
tensions could lead to cyber attacks. Emerging technologies,
including AI, could potentially increase information security
risks.
|
|
What
is the risk?
|
|
Emerging risks: As
explained on page 62 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.
|