GCP Asset Backed Income Fund Limited
Annual report and nancial statements
for the year ended 31 December 2023
GCP Asset Backed Income Fund LimitedAnnual report and nancial statements for the year ended 31 December 2023
Introduction
1 At a glance – 31 December 2023
Highlights for the year
2 Investment objectives and KPIs
3 Portfolio at a glance
4 Chairman’s statement
Strategic report
12 Strategic overview
14 Business model
16 Investment Manager’sreport
34 Financial review of the year
38 Sustainability
58 Stakeholders
66 Risk management
Governance
76 Board of Directors
78 The Investment Manager
80 Board leadership and purpose
82 Division of responsibilities
85 Composition, succession and evaluation
88 Audit, risk and internal control
96 Remuneration
100 Directors’ report
Financial statements
104 Statement of Directors’ responsibilities
105 Independent Auditor’s report
110 Statement of comprehensive income
111 Statement of nancial position
112 Statement of changes in equity
113 Statement of cash ows
114 Notes to the nancial statements
Additional information
139 Shareholder information
140 Portfolio information (unaudited)
142 Alternative performance measures
(unaudited)
145 Glossary
147 Corporate information
Contents About the Company
GCP Asset Backed Income Fund
Limited (the “Company”) is a
listed investment company which
predominantly invests in UK asset
backed loans.
The Company seeks to provide shareholders
with attractive risk-adjusted returns through
regular, growing distributions and modest capital
appreciation over the long term.
The Group is currently invested in a diversied
portfolio of asset backed loans across the social
infrastructure, property, energy and infrastructure,
and asset nance sectors, which are located
predominantly inthe UK.
The Company is a closed-ended investment
companyincorporated in Jersey. It has a premium
listing on the Ofcial List of the FCA with its shares
admitted to trading on the Premium Segment of
theMain Market of the LSE since 23October 2015.
At 31 December 2023, it had a market capitalisation
of £279.2 million. The Company is a constituent of
theFTSE All-Share Index.
www.gcpassetbacked.com
At a glance – 31 December 2023
NAV per ordinary share p
Market capitalisation £m
Ordinary share price p
Value of investments
1
£m Dividends for the year p
Prot for the year £m
2022 2022 2022
202220222022
2021 2021 2021
202120212021
2023 2023 2023
202320232023
279.2
65.60
364.7
84.00
426.6
97.00
366.8
93.21
435.1
94.90
447.0
99.29
6.3
18.3
6.3
7.7
6.3
15.0
Highlights for the year
— Dividends of 6.3 pence per share declared
and paid in respect of the year.
— Total shareholder return of -14.1%, total NAV
return of 5.0% (31 December 2022: -7.3%
and 1.9%) and an annualised total shareholder
return since IPO of 1.1%.
— Prot for the year of £18.3million
(31December 2022: £7.7 million). The increase
predominantly reects a reduction in valuation
losses of the portfolio. Furtherinformation on
nancial performanceis included on page 35.
— NAV per ordinary share of 93.21
4
pence at
31December 2023, a decrease of 1.8% due
to further write-downs to the Co-living
group loan and discount rate and fair value
adjustments applied to the portfolio by
the independent Valuation Agent. Further
information is included in the Investment
Manager’s report on pages 16 to 33.
— Repayment of the Company’s £50.0 million
RCF in full in December 2023, following the
early prepayment of loans.
— New loans of £4.5 million advanced by
the Group in the rst quarter of the year,
withfurther investments of £28.2 million made
to support existing borrowers.
— Exposure to a diversied, partially
ination and/or interest rate-protected
portfolio of 42asset backed loans with a
third partyvaluation of £362.8 million
5
at
31December 2023.
— 8.5 million shares repurchased to support
the Company’s share price, providing NAV
accretion of 0.38 pence per share, with 16.4
million shares repurchased since the start of
the buyback scheme in March 2020.
— Repayments of £93.5 million, generating
repayment fees of £1.2 million.
— On 11 August 2023, the Company announced it
had agreed heads of terms with GCP Infra in
respect of a proposed combination. Following
signicant shareholder consultation,
discussions ceased. Further information
is included in the Chairman’s statement on
page4.
— Post year end, in March 2024, the Company
announced the results of the Strategic Review,
following extensive shareholder consultation.
The Board reached the conclusion that
shareholder value will be best served by
winding down the Company with an Orderly
Realisation of its assets and return of capital.
Shareholders will be given the opportunity to
vote on the discontinuation of the Company at
the AGM on 20 May 2024. Further information is
included in the Chairman’s statement on pages
4 to 6.
— Post year end, the Group received repayments
totalling£41.4 million.
1. Includes the valuation of the Subsidiary, refer to note 11 to the nancial statements for further information.
2. Total dividends of 6.325 pence include a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
3. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
4. Does not include a provision for the dividend in respect of the quarter to 31 December 2023, which was declared and paid post year end.
5. Valuation of the portfolio held by the Subsidiary. The Company makes its investments through its wholly owned Subsidiary. Refer to note 1 to the nancial statements for
further information.
1
Introduction
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment objectives and KPIs
The Company’s purpose as a closed-ended investment company is to meet its
investment objective, which is to generate attractive risk-adjusted returns through
regular, growing distributions and modest capital appreciation over the long term.
Attractive risk
adjusted returns
Regular, growing
distributions
Capital
appreciation
To provide shareholders with
returns that are attractive with
regard to the level of risk taken.
To provide shareholders with
regular, growing dividend
distributions.
To achieve modest appreciation
in shareholder value over the
longterm.
Portfolio by value with an EPC
rating of B or above
46%
3
2022: 44%
Portfolio by value which aligns
with the UN SDGs
5
25%
6
2022: 30%
Gender diversity of the Board of
Directors of the Company
50:50
2022: 50:50
Key performance indicators
Sustainability indicators
The Company has generated an
annualised total shareholder return
since IPO
1
of 1.1%.
Dividends totalling 6.3 pence
per ordinary share were declared
for the twelve month period to
31December 2023.
The Company’s shares were
tradingat 65.60 pence per share at
the year end.
-14.1%
Total shareholder return
1
for the year
31 December 2022: -7.3%
6.3p
4
Dividends in respect of the year
31 December 2022: 6.325p
65.60p
Share price at 31 December 2023
31 December 2022: 84.00p
8.7%
2
Weighted average annualised yield
1
on
investment portfolio
31 December 2022: 8.0%
(8.3% excl. loans held at net realisable value)
52%
Percentage of portfolio with partial ination
and/or interest rate protection
31 December 2022: 53%
29.6%
Discount
1
to NAV at 31 December 2023
31 December 2022: 11.5% discount
1
Further information on Company performance can be found on pages 34 to 37.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. Including the loans held at net realisable value. Excluding these loans, the weighted average annualised yield remains at 8.7%.
3. Percentage of property and social infrastructure sector at 30 September 2023 with an EPC rating of B or above. 7% rated C, 6% rated D, E and F, with the remainder either
not applicable or not found.
4. Total dividends of 6.325 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
5. Percentage of portfolio at 31 December 2023 measured in alignment with the UN SDGs: housing for vulnerable adults, care for the elderly and urban regeneration.
6. Reduction compared to the prior year relates to the repayment of the nursery loans in December 2023.
2
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Portfolio at a glance
Portfolio of 42 asset backed loans
1
with an average maturity of ve years which are
partially ination and/or interest rate protected. The loans fall within the following
sectors and are predominantly secured against physical assets and contracted cash
ows in the UK.
1. Refer to the portfolio information report on pages 140 and 141.
2. The classication of the Company’s senior or subordinated security is determined from the terms of the facility agreement with each borrower. However, in some cases, the
borrower may utilise the Company’s senior ranking loan for the purpose of lending to a third party, and for which on a look-through basis, the Company’s reported senior
security is subordinated. In such cases, the independent Valuation Agent fair values the Company’s loan as a subordinated loan.
3. The Group has exposure to overseas assets located in Europe, the US and Australia at the year end.
Number of loans within sector
1
Area of square corresponds to valuation of sector
Percentage of portfolio by value
%
42
loans
18
13
10
1
Property
£181.3m
50%
Social infrastructure
£139.7m
38%
Energy and infrastructure
£5.6m
2%
Asset nance
£36.2m
10%
Senior ranking security
2
68%
UK exposure
3
77%
Secured against
physical assets
88%
3
Introduction
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Alex Ohlsson
Chairman
Chairman’s statement
I am pleased to present the Company’s annual report
fortheyear ended 31 December 2023.
Introduction
Against a wider market background of economic
uncertainty and volatility, the Company continues
to offer investors exposure to a diversied
portfolio of secured loans.
The Company has experienced signicant
challenges throughout the year, primarily due to
prevailing market factors. At the time of writing,
the Company’s shares are trading at a c.25%
discount
1
to the 31 March 2024 NAV. Throughout
2023, credit markets underwent rapid and
signicant changes, driven by increases in central
bank rates in an effort to curb ination. The
Board recognises this has made the Company’s
return prole appear less attractive than other
mainstream sources of income available to
investors, prompting concerns over the wider
economic impact on borrower liquidity and asset
valuations. This, along with other market factors,
has caused the Company’s shares to trade at a
persistent discount
1
to NAV over theyear.
Proposed combination
After careful consideration of several strategic
opportunities, on 11 August 2023, the Company
announced it had agreed heads of terms with
GCP Infra in respect of a proposed combination
of the Company with GCP Infra (the “Scheme”).
The Company underwent an extensive period
of shareholder consultation prior to incurring
any material expenditure in progressing the
Scheme, the cost of which was bourne by the
Investment Manager, rather than the Company.
Whilst a number of shareholders expressed
support for the Scheme, a signicant minority
of shareholders were not supportive. As a result
of that feedback, on 18September 2023, the
Board announced it had notied GCP Infra of
itsintention to cease discussions relating to
theScheme.
Strategic review
Following the cessation of the Scheme, the
Company announced on 13 December 2023 that
the Board would commence a Strategic Review
to consider how it may best deliver value to
shareholders (the “Strategic Review”).
As part of the Strategic Review, the Board
actively engaged with shareholders to obtain
feedback and inform its decision-making process.
The Board specically sought shareholders’ views
in respect of:
i) a wind-down of the Company with an orderly
realisation of its assets (the “Orderly
Realisation”);
ii) the potential continuation of the Company
in its present form in accordance with its
current investment policy delivered by the
Investment Manager, paired with a partial
capital return (“Continuation”); and
iii) a potential sale of the entire issued share
capital of the Company and/or its assets
(a“Potential Sale”).
The engagement involved a series of shareholder
meetings undertaken by myself and supported
by the Company’s Broker. I would like to thank
all those shareholders who participated in this
process.
As a consequence, feedback on the future
strategic direction of the Company was provided
to the Board by shareholders representing
a majority of the total voting rights in the
Company. Whilst differing views were expressed
by shareholders on the future of the Company,
a majority indicated a preference for an Orderly
Realisation or Potential Sale of the Company.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
4
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Orderly Realisation
Shareholders will be given the opportunity to
vote on the discontinuation of the Company
at the AGM on 20 May 2024 which will be
presented as an ordinary resolution requiring
the majority of those voting to vote in favour of
the discontinuation in order for the resolution
to pass. In addition, subject to the approval by
shareholders of the Discontinuation Vote, the
Board intends to convene an EGM to be held
immediately after the 2024 AGM at which it will
seek shareholder approval for certain resolutions
required to facilitate the Orderly Realisation (the
“Proposals”).
Subject to the Proposals being approved by
shareholders, it is the Board’s expectation that
the Company will make a capital distribution of
at least £55.0 million as soon as is reasonably
practicable following the conclusion of the 2024
EGM. The Board will also seek to expedite capital
distributions when practicable thereafter.
The Orderly Realisation will not result in a
liquidation of the Company in the immediate
future and the Board will seek to implement the
Orderly Realisation in a manner that maximises
value for shareholders.
Amounts realised are expected to come from
contractual repayments by borrowers to the
Company as loans mature in accordance with
their contractual terms, and from the disposal of
portfolio assets, including longer-dated loans.
Should the Proposals be approved by
shareholders, it is the Board’s intention to
maintain the Company’s existing level of dividend
of 6.235 pence per annum
1
whilst the Company
remains substantially invested, for as long as
practicable.
The Company currently intends to publish a
circular (the “Orderly Realisation Circular”)
with further information, including an updated
portfolio repayment prole at 31 March 2024,
which will be published on 2 May 2024.
Continuation
In the event that the Discontinuation Vote
proposed at the AGM does not pass, the
Company will continue as presently constituted,
with the same investment objective: to generate
attractive risk-adjusted returns through regular,
growing distributions and modest capital
appreciation over the long term, alongside a
partial capital return.
The Company’s current investment objective is
designed to provide investment performance
that is not correlated with wider markets. This
has been challenged throughout a period of
signicant market volatility: the exit of the UK
from the European Union; the Covid-19 pandemic;
the onset and continuation of war in Europe and
associated impact on energy costs; and more
recently, a period of higher ination and interest
rates. Whilst the majority of the Company’s
investment portfolio has demonstrated resilience
to wider market volatility, the performance of
some loans have been impacted. Key learnings
have been taken from these loans which will
help support the successful evolution of the
Company’s investment approach in a continuation
scenario. Refer to pages 20 and 21 for more
information on problem and watchlist loans.
1. This is a target only and does not constitute a prot forecast.
Introduction
5
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Chairman’s statement continued
Strategic review continued
Potential Sale
The Board is exploring all options to maximise
shareholder value.
On 6 October 2023, the Board received a
non-binding proposal from a US-listed investment
company to acquire the entire issued share
capital of the Company. The proposal offered 68
pence per share in cash or an alternative where
shareholders could receive US-listed shares in the
possible offeror, equating to 76 pence per share.
TheBoard unanimously rejected this proposal.
On27November 2023, a second conditional and
non-binding proposal was received, offering 72
pence per share in cash or 78 pence per share
in a share alternative. TheBoard agreed to
provide access to conrmatory due diligence.
However, before accessing such information, on
11December2023, the possible offeror notied
the Company of its withdrawal of the proposal.
Any parties interested in a Potential Sale should
contact the Company’s Broker for further
information.
Investments
At the year end, the Group held 42 loans with
a fair valuation of £362.8 million and principal
balance of £374.6 million invested across the
property, social infrastructure, energy and asset
nance sectors. A breakdown of the portfolio
can be found on page 28.
The Group advanced limited loans of £4.5million
to new borrowers in the rst quarter of the
year and £28.2million to support existing
borrowers, including planned capitalised interest
of £7.7million during the year. Following the
cessation of discussions relating to the Scheme
on 18 September 2023, the Board restricted
the Company’s investment activity, such that
no investments would be made ahead of the
2024 AGM, with any material amendments or
extensions to existing borrowers requiring the
Board’s consent.
The weighted average annualised yield
1
generated by the portfolio increased to 8.7%
2
in
the year (from 8.0% at 31 December 2022). This
increase was driven by index-linkage across 52%
of the investment portfolio and changes in the
composition of the portfolio, principally due to
maturity repayments.
Since the Company’s inception, the annualised
loss ratio
1
stands at 0.50%. Of this, 89% is
attributable to impairments on the Co-living
group loan, for which an update is provided on
page 20.
The weighted average discount rate used to
value the Group’s investment portfolio increased
to 10.5% in the year, an increase of 2.1% from
the previous year. This excludes the loans
held at net realisable value. This increase was
predominantly due to broad sector-based
movements. These revaluations contributed to
reductions in net assets of £6.4 million (or 1.49
pence per share) during the year.
The Board and Investment Manager have
continued to focus on watchlist and problem
loans during the year. At 31December2023, there
were eight loans categorised as either watchlist
or problem loans, together representing 14.9% of
NAV. Refer to pages 20 and 21 for further details.
The Group has exposure to real estate markets
across the portfolio. At 31December2023, 88%
of the Group’s loans by portfolio value were
exposed to property, including loans exposed to
property in sectors with social infrastructure,
such as student accommodation, social housing
and care homes. The portfolio includes direct
exposure to seven projects currently under
construction, which represent 18% of the
portfolio value. A further 5% is exposed to
construction projects either through one land
development project or three borrowers who are
development nance companies. Theportfolio
includes subordinated loans which are
subordinate to the borrowers’ senior debt. Such
loans represented less than one-third ofthe
portfolio value
3
.
Further information on the contracted cash
repayment prole of the investment portfolio
and illustrative repayments is included in the
Investment Manager’s report on page 22.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. Including the loans held at net realisable value. Excluding these loans, the weighted average annualised yield
1
remains at 8.7%.
3. The classication of the Company’s senior or subordinated security is determined from the terms of the facility agreement with each borrower. However, in some cases, the
borrower may utilise the Company’s senior ranking loan for the purpose of lending to a third party, and for which on a look-through basis, the Company’s reported senior
security is subordinated. In such cases, the independent Valuation Agent fair values the Company’s loan as a subordinated loan.
6
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Financial performance
In the year, the Company’s portfolio generated
interest income of £31.7 million, offset by net
losses on nancial assets of £7.4 million and gains
on derivatives and other income of £2.0million.
This resulted in total income of £26.3million.
Thetotal prot for the year was £18.3 million
after expenses and nance costs of £8.0million.
This was a signicant increase from the previous
year’s prot of £7.7 million, primarily due to a
reduction in write-downs recognised in the
prior year. Earnings of 4.27 pence per share
on an IFRS Accounting Standards basis were
generated. Adjusted EPS
1
was 7.02 pence per
share, compared to the dividend of 6.325 pence
for the year.
NAV and share price
The Company’s share price has continued to
trade at a discount to NAV throughout the
year, with an average discount
1
of29.6%. At
31 December 2023, the share price was 65.60
pence, representing a discount
1
to NAV of 29.6%.
Since the Company’s IPO in 2015, its shares have
traded at an average discount
1
of 4.2%.
Total shareholder return
1
for the year was -14.1%
(31 December 2022: -7.3%), driven by a reduction
in the Company’s share price. Bycontrast,
total NAV return
1
for the year was 5.0%
(31December2022: 1.9%).
At the year end, the net assets of the Company
were £396.7 million. The NAV per share decreased
from 94.90 pence at 31 December 2022 to 93.21
pence at 31 December 2023.
The Board and Investment Manager continued
to engage with shareholders over the year,
releasing detailed portfolio information in
shareholder communications, hosting regular
webinars and meeting with shareholders on an
individual basis throughout the year to discuss
the Scheme and the Strategic Review.
Cash resources, dividend policy and
sharebuybacks
Over the rst half of 2023, 8.5million shares were
repurchased, returning £6.5 million of cash to
shareholders. In total, 16.4 million shares have
been repurchased since the start of the buyback
programme in March 2020. No buybacks occurred
in the second half of the year while work was
undertaken on the Scheme and the subsequent
Strategic Review.
The Company paid 6.325
2
pence per share in
interim dividends, in line with the 6.325 pence
per share paid in interim dividends for 2022.
Thedividend was 0.68 times covered by an
EPS of4.27 pence and 1.1 times covered by an
adjusted EPS of 7.02 pence.
Should the Proposals set out on page 5 be
approved by shareholders, it is the Board’s
intention to maintain the Company’s existing
dividend of 6.325 pence per annum whilst the
Company remains substantially invested, for as
long as is practicable
3
.
Financing
The Company has an RCF with RBSI for the
amount of £50.0 million. At the year end, the
RCF had been fully repaid. Utilisation over the
year averaged 71%, representing an average
loan to NAV of 9.0%, which is a modest level of
gearing. During the period of utilisation, the
Company demonstrated coverage on all nancial
covenants and compliance with other covenants.
The RCF has a maturity date of August 2024, with
a £nil balance at the date of the report.
Responsible investment
The Board has continued to work closely with the
Investment Manager to progress the Company’s
stated ESG aims and identify ways the Company
can further embed the Principles for Responsible
Investment in its operations. This year, the
Company updated its ESG policy, which can be
found on the Company’s website.
Of particular note has been the data collection
project undertaken by the Investment Manager
to report material ESG metrics from the
underlying portfolio. This is the second year
the exercise has been carried out and has
resulted in better data coverage and increased
transparency in the Company’s reporting.
The Investment Manager also increased its PRI
assessment score, scoring an average of 76
points out of 100 and four out of ve stars for
each category, improving its overall score by
one star. The PRI assessment report, which is
available on the Investment Manager’s website,
outlines how signatories’ responsible investment
practices compare year-on-year, across asset
classes, and with peers at a local and global level.
A number of ESG workstreams were placed on
hold over the second half of the year while work
was carried out on the Scheme and the Strategic
Review. More information on ESG can be found in
the sustainability section of this report on pages
38 to 57, which includes a description under the
four TCFD pillars of governance, strategy, risk
management, and metrics and targets.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. Total dividends of 6.325 pence per share includes a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
3. This is a target only and does not constitute a prot forecast.
7
Introduction
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Chairman’s statement continued
Investment Manager
In July 2023, Joanne Fisk, the co-fund manager
of the Company, resigned from the Investment
Manager. Furthermore, in December 2023,
Saira Johnston, the Chief Financial Ofcer of
the Investment Manager and an investment
committee member, resigned from the
Investment Manager. Ms Johnston’s role was
lled by internal appointments within the
Investment Manager who are known to the
Company. The Board would like to thank Ms Fisk
and Ms Johnston for their contributions to the
Company and wish them the best for the future.
In October 2023, Anthony Curl joined the
Investment Manager as Chief Investment
Ofcer to support Philip Kent who continues as
lead manager of the Company. The Investment
Manager has highlighted Mr Curl’s long and
successful track record in the long income
and credit sectors, joining the rm from Alpha
Real Capital, where he was co-head of long
income, managing several investment teams for
strategies including social infrastructure and
commercial ground rents.
Post year end, the Investment Manager
announced the appointment of Albane Poulin
as Head of Private Credit, a new role at the
Investment Manager. She joined in February 2024
and brings a wealth of private credit origination
and management experience, most recently
as Head of European Private Placements at
abrdn. Ms Poulin supports the ongoing provision
of services to the Company, alongside Philip
Kent, Anthony Curl, Luther Ward-Faint and the
widerteam.
It is the Board’s current intention, subject to
the outcome of the Discontinuation Vote and
agreement of revised terms, that the Investment
Manager is retained to provide investment
management services in connection with the
Orderly Realisation. The Board considers the
Investment Manager to be best placed to provide
such services, taking into account its knowledge
and experience of the Company’s investment
portfolio.
To this effect, the Board has commenced
discussions with the Investment Manager
in respect of proposals for the provision of
investment management services during the
Orderly Realisation under revised terms that seek
to incentivise the Investment Manager to achieve
the objective of maximising shareholder return
in a timely manner. In due course, the Investment
Manager will engage with shareholders to
present its plan for the Orderly Realisation.
Board changes
In light of the outcome of the Strategic Review,
Joanna Dentskevich and Colin Huelin, who
each have served on the Board for almost nine
years, do not intend to seek re-election as
non-executive Directors of the Company at the
2024 AGM.
Mrs Dentskevich has served as Senior
Independent Director and as chair of the Risk
committee. The Board has beneted from Mrs
Dentskevich’s signicant experience in nancial
markets, particularly in the area of risk, since
the Company’s inception. Her sound judgement
and wise counsel have regularly contributed to
the Board’s decision-making process. Mr Huelin
has served as chair of the Audit committee since
the Company’s IPO nearly nine years ago. He has
brought considerable nancial experience to
the Company. His commitment to his role and his
scrupulous analysis of all matters put before him
have served the Company well.
The Board and the Investment Manager would
liketo extend their thanks to Mrs Dentskevich
and Mr Huelin for their signicant contribution to
the Company throughout their terms of ofce.
We wish them well in their future endeavours.
8
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
The Board is currently undertaking a
recruitment process and seeking to appoint
a new non-executive Director at the 2024
AGM. The Board will have due regard for
corporate governance best practice through
an independent process, taking into account
relevant experience, Board diversity and the
regulatory requirements applicable to the
Company. Further information is provided in the
Remuneration and Nomination committee report
on pages 85 to 87.
The appointment of the new Director will
be subject to the approval of the JFSC and
shareholder approval at the 2024 AGM. Following
appointment of the new Director, the Board will
comprise of three non-executive Directors.
The Board will review the composition of its
committees once the new Director is appointed
and make appropriate changes as required.
Further information will be included in the AGM
Circular which will be sent to shareholders on
2May 2024.
Governance and compliance
The Board recognises the importance of a strong
corporate governance culture and continues
to maintain principles of good corporate
governance as set out in the AIC Code. Refer to
page 80 for further information.
Principal risks and uncertainties
Following a detailed review of the principal risks
and uncertainties described in last year’s annual
report and those reported in the Company’s 2023
half-yearly report, the Board have concluded
there exists a new principal uncertainty relating
to the Discontinuation Vote, in addition to the
existing geopolitical uncertainty relating to the
invasion of Ukraine and the Israel-Hamas war.
Furthermore, as a result of the cessation of
the Scheme and the outcome of the Strategic
Review, the Board has identied two new
principal risks and a previous principal risk that
is no longer applicable. Further information is
provided in the risk section on pages 68 to 71.
The Board and Investment Manager have carried
out stress and viability testing on the Company to
assess the impact of these risks. Further details
on stress and viability testing and the risks and
uncertainties facing the Company are set out on
pages 66 to 73.
Market overview and outlook
Over the twelve month period to
31December2023, the yield on ve year gilts
decreased by 0.2%, with the yield increasing by
2.6% in the two year period to 31 December 2023.
The dramatic and rapid change in the cost of
borrowing has been driven by increases in central
bank rates, which are 5.25% in the UK at the
date of the report. Higher rates are an attempt
to reduce headline ination, with year-on-year
CPI peaking at 11.1% in October 2022, reducing
to 4.0% in December2023. Furthermore, the UK
slipped into a technical recession in the second
half of 2023, prompting concerns about the slow
growth rate of the economy.
The Company, and the wider alternative
investment universe in which it sits, has
historically provided investors with an attractive
alternative to xed income during a period of
enduring low interest rates. The increase in
yields available from traditional income sources
has been accompanied by a ight of capital away
from alternative assets into more traditional
xed income producing assets. This has, in turn,
reduced demand for the Company’s shares and
contributed to the prevailing and persistent
discount
1
to NAV at which the Company’s shares
have traded over the course of the past 18
months.
As noted on page 4, whilst differing views have
been expressed by shareholders on the future of
the Company, a majority indicated a preference
for an Orderly Realisation or a Potential Sale.
Accordingly, the Board intends to recommend
that shareholders vote for discontinuation of
the Company in its present form at the AGM in
May2024.
The Board thanks shareholders for the
constructive feedback provided as part of the
shareholder engagement process. The feedback
has been invaluable in informing the Board’s
decision-making process and in formulating
proposals for an Orderly Realisation of the
Company.
Alex Ohlsson
Chairman
24 April 2024
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
9
Introduction
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Page nos TBC
What’s in
this section
Strategic report
Strategic overview
Find out more on pages 12 and 13
Business model
Find out more on pages 14 and 15
Investment Manager’s report
Find out more on pages 16 to 33
Financial review of the year
Find out more on pages 34 to 37
Sustainability
Find out more on pages 38 to 57
Stakeholders
Find out more on pages 58 to 65
Risk management
Find out more on pages 66 to 73
10
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
11
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Strategic overview
The Company’s investment
objective is to generate attractive
risk-adjusted returns through
regular, growing distributions
andmodest capital appreciation
over the long term.
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
12
Investment objective
The Company’s investment objective is to
generate attractive risk-adjusted returns
through regular, growing distributions and
modest capital appreciation over the long term.
Investment policy
The Company seeks to meet its investment
objective through a diversied portfolio of
investments which are secured against, or
comprise, contracted, predictable medium to
long-term cash ows and/or physical assets.
TheCompany’s investments will predominantly
be in the form of medium to long-term xed or
oating rate loans which are secured against
cash ows and/or physical assets which are
predominantly UK based.
The Company’s investments will typically be
unquoted and will include, but not be limited
to, senior loans, subordinated loans, mezzanine
loans, bridge loans and other debt instruments.
The Company may also make limited investments
in equities, equity-related derivative instruments
such as warrants, controlling equity positions
(directly or indirectly) and/or directly in physical
assets.
The Company will at all times invest and manage
its assets in a manner which is consistent with
the objective of spreading investment risk.
Investment restrictions
The Company observes the following investment
restrictions:
— any single investment, or any investments with
a single counterparty, will be limited to 20% of
the gross assets of the Company;
— investments in equities and equity-related
derivative instruments, including controlling
equity positions and any direct investments in
physical assets, will be limited to 10% of the
gross assets of the Company;
— no more than 30% of the gross assets of the
Company will be used to nance investments
outside the UK; and
— the Company will not invest in other listed
closed-ended funds.
The limits set out above shall all apply at the time
of investment, as appropriate.
Structure of investments
The Company typically makes investments directly
or indirectly through one or more underlying
special purpose vehicles which will usually be
wholly owned by the Company and over which
the Company will exercise control as regards
investment decisions. The Company may from
time to time invest through vehicles which are
not wholly owned by it. In such circumstances,
the Company will seek to secure controlling
rights over such vehicles through shareholder
agreements or other legal arrangements.
In the event of a breach of the investment
restrictions set out above, the Investment
Manager shall inform the Directors upon
becoming aware of the same and if the Directors
consider the breach to be material, notication
will be made to a regulatory information service.
No material change will be made to the
investment policy without the approval of
shareholders by ordinary resolution.
The Board intends to convene an EGM to be
held immediately after the 2024 AGM at which,
subject to the approval by shareholders of the
Discontinuation Vote, it will seek shareholder
approval for certain resolutions to facilitate
the Orderly Realisation, including to change the
current investment objective and policy. Further
information can be found on page 5.
Non-nancial objectives of the Company
The key non-nancial objectives of the
Companyare:
— to maintain strong, long-term and positive
working relationships with all stakeholders,
including shareholders and borrowers;
— to promote the development of emerging
asset backed sectors by developing nancial
products that match the requirements of
these sectors; and
— to operate a long-term, viable business model,
which does not detrimentally impact the
environment and provides tangible benets
tosociety.
Key policies
Borrowing and gearing policy
The Company may, from time to time, use
borrowings for investment purposes, to manage
its working capital requirements or in order to
fund the market purchase of its own shares.
Gearing, represented by borrowings, will not
exceed 25% of NAV, calculated at the time of
borrowing.
Hedging and derivatives
The Company may invest through derivatives
for investment purposes and efcient portfolio
management. In particular, the Company may
engage in interest rate hedging or otherwise
seek to mitigate the risk of interest rate changes
as part of the Company’s efcient portfolio
management.
Investments will be denominated primarily in
Sterling. However, the Company may make limited
investments denominated in currencies other
than Sterling, including US Dollars, Euros and
Australian Dollars. In the event of the Company
making such investments, the Investment
Manager will use its judgement, in light of
the Company’s investment policy, in deciding
whether or not to effect any currency hedging
in relation to any such investments. In addition,
the Company may do so where the Investment
Manager considers such hedging to be in the
interests of efcient portfolio management
and may utilise derivative instruments to seek
to achieve this. The Company will not engage in
currency trading for speculative purposes.
Any use of derivatives for investment purposes
will be made on the basis of the same principles
of risk spreading and diversication that apply
to the remainder of the Company’s investment
portfolio and will be subject to the investment
restrictions described above.
Dividend policy
The Company pays dividends on a quarterly basis,
with dividends typically declared in January, April,
July and October and paid in or around February,
May, August and November in each nancial year.
The Company has the authority to offer a scrip
dividend alternative to shareholders. The offer
of a scrip dividend alternative was suspended
at the Board’s discretion, for all 2022 and 2023
dividends, as a result of the discount between
the likely scrip dividend reference price and the
relevant quarterly NAV per share of the Company.
TheBoard intends to keep the payment of future
scrip dividends under review.
Conicts of interest
Where there is any overlap for a potential
investment with GCP Infra, GCP Infra has a right
of rst refusal over such investment. GCP Infra
has not exercised this right of rst refusal since
the Company’s IPO.
As previously announced, no material
amendments or extensions of facilities to
existing borrowers will be made ahead of the
Discontinuation Vote at the 2024 AGM without
the Board’s prior consent. A procedure has
been put in place between the Board and the
Investment Manager to manage this process.
In the event that the Investment Manager or any
shareholders, directors, ofcers or employees of
the Investment Manager are directly or indirectly
interested in any entity or asset in relation to any
investment proposal, the potential investment is
presented to the Board for its approval. Further
details can be found on page 37.
Strategic report
13
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Business model
The Group’s purpose is to invest in a diversied portfolio of asset backed loans to provide
regular, growing distributions and modest capital appreciation over the long term.
Governance
Read how the Company is governed
and the activities of the Board during
the year in the governance section
onpages 76 to 101.
Environmental
Read about how the Company’s
activities benet the environment
inthe sustainability section on
pages38 to 57.
Social
Read about how the Company’s
activities contribute to society
in thesustainability section on
pages51to 53.
Financial
Read about the Company’s nancial
performance and dividend cover in
the nancial review on pages 34 to 37
and its long-term viability on page73.
Attractive risk
adjusted returns
To provide shareholders
with returns that are
attractive with regard to
the level of risk taken.
Regular, growing
distributions
To provide shareholders
with regular, growing
dividend distributions.
Capital
appreciation
To achieve modest
appreciation in
shareholder value over
thelong term.
Investment
objectives
Sustainability
considerations
Implementation
of investmentstrategy
Independent Board
Investment Manager
Third party
serviceproviders
The Group invests in asset backed loans which utilise the
Investment Manager’s expertise and proven track record in loan
originating and monitoring. The Group is able to provide bespoke
lending solutions where traditional lenders cannot due to reasons
other than credit quality.
Loan origination
and execution
ESG
due
diligence
The Company operates a disciplined approach to nancial
management, only increasing its capital when it has a highly
executable pipeline of investments. The Company uses hedging
where appropriate to manage foreign exchange exposure.
Financial
management
ESG
positive
investment
14
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Governance
50:50
Board gender diversity
at31December 2023
Environmental
46%
Portfolio by value with an EPC
rating of B or above
3,4
Social
1,320
FTEs at portfolio level
at30September 2023
4
Financial
0.68x
Dividend cover (IFRS) at
31December2023
5
Annualised total
shareholder return since
IPO
1
of 1.1%.
-14.1%
Total shareholder return
1
forthe year
The Company has maintained
its dividend year-on-year.
6.3p
2
Dividends in respect of
theyear
The shares have traded at a
discount
1
to NAV throughout
the year.
29.6%
Discount
1
to ordinary
shareNAV at year end
Sustainability
indicators
Key performance
indicators
Strong governance
Read more on pages 76 to 101.
Investment Manager
Advisory and
administration
The operations of the Company are delegated to the Investment
Manager and are overseen by the Board. The Investment Manager
maintains a robust control environment and undergoes an internal
controls review from an external audit provider on an annual basis.
Operational
management
The Company operates a robust risk management and mitigation
process along with active controls monitoring and stress testing
procedures. The Investment Manager is appointed as AIFM to
theCompany and is responsible for the management of risk
alongside the Board.
Risk
management
ESG
data
collection
Assessing
climate
risk
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. Total dividends of 6.325 pence per share includes quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
3. Percentage of property and social infrastructure portfolio at 30 September 2023 with an EPC rating of B or above. 7% rated C, 6% rated D, E and F, with the remainder either
not applicable or not found.
4. Twelve month period to 30 September 2023 to facilitate inclusion in the annual report.
5. The dividend of 6.325 pence per share is fully covered by an adjusted EPS
1
of 7.02 pence per share.
Strategic report
15
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s
report
The Company’s target market
remains underserviced by
mainstream lenders and
thereforepresents an opportunity
to generate attractive
risk-adjusted returns.
16
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sponsors/
equity
investors
Lenders
Equity investment
and dividends
Loan investment,
repayment and interest
Lenders’
security net
Asset use and risk
transfer (project
revenue)
Services to monetise
assetand risk transfer
(project cost)
Asset
users
Service
providers
(e.g. operator)
Physical
asset
Project
Company
Typical investment structure
Asset backed lending
Asset backed lending is an approach to
structuring investments used to fund
infrastructure, industrial or commercial projects
and asset nancing. Asset backed lending relies
on the following to create security against which
investments can be provided:
— the intrinsic value of physical assets; and/or
— the value of long-term, contracted cash ows
generated from the sale of goods and/or
services produced by an asset.
Asset backed lending is typically provided to a
Project Company, a corporate entity established
with the specic purpose of owning, developing
and operating an asset. Financing is provided to
the Project Company with recourse solely to the
shares held in, and assets held by, that Project
Company.
Cash generation to service loans and other
nancing relies on the monetisation of the
goods and/or services that a Project Company’s
assets provide. Lenders implement a security
structure that allows them to take control
of the Project Company and its assets. This
optimises the monetisation of goods and/or
services associated with such assets if the
Project Company has difculty complying with
itsnancing terms.
The Investment Manager uses a covenant-heavy
approach to lending within these structures.
This approach tailors loans to each borrower
andrequires the borrowers to meet well-dened
and specic performance measurements or
covenants. This is opposed to a ‘covenant-lite’
approach which results in a loan facility with
less restrictions on the borrower and fewer
protections for the lender. The Investment
Manager continues to see signicant benets
in a covenant-heavy approach with information
reporting requirements providing increased
visibility of issues, if any arise.
Active management
The Investment Manager continues to work
closely with borrower management teams which
it views as crucial to navigating the changing
macro-economic environment. As well as
receiving information mandated under the loan
documentation, the Investment Manager’s
designated portfolio management team seeks
to maintain a regular dialogue with borrowers to
ensure any potential issues are identied early
and can be dealt with appropriately.
In the year, this engagement has included data
collection relating to climate risk and ESG
indicators to improve information held across
the portfolio. Further information is included on
pages 46 and 47.
In addition, the Investment Manager has
focused on the ability of operational assets
within the portfolio to meet rising energy and
stafngcosts.
Strategic report
17
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Full repayments during the year (top ve by value)
Sector
Amount
repaid
(excl. fees)
Interest
rate IRR
1,2
Origination
date
Maturity
date
Type
of loan Description
Social
infrastructure
£34.3m 9.25% 9.53% June 2019 Between
June2027
andJune
2031
Senior In December 2023, the Company received
£34.3million from the early prepayment of
loans secured against a portfolio of nurseries
across the UK. The proceeds comprised
repayment of £33.6 million of principal and
£0.7million of accrued interest, with an early
prepayment fee of £0.8 million. At the date
of repayment, the valuation of the loans was
£33.6 million, representing 8.2% of the total
fair value of the Company’s investments.
Property £6.2m 7.00% 7.75% June 2021 December
2023
Senior In December 2023, the Company received
repayment of £6.2 million in respect of a loan
to develop affordable housing in London.
The project created 30 additional housing
units in the airspace between the buildings
of existing affordable housing. Atwomonth
extension of the facility was agreed, with
a 2% rate increase to 9% and a £20,000
extension fee payable by the borrower to the
Group to allow for practical completion and
sale documentation to be completed.
Asset nance £4.3m 8.00% 9.59% May 2019 June 2023 Senior In June 2023, the Company received
repayment of a loan secured against
management contract cash ows in respect
of a portfolio of project companies operating
or constructing schools, health centres and
care homes.
Energy and
infrastructure
£3.1m 7.50% 9.16% January 2018 December
2024,
March2025
Senior
In September 2023, the Company received
repayment of two loans secured against two
CNG stations located across the UK. These
loans generated IRRs
1
of8.4% and 9.8%
respectively.
Property £1.3m — — February 2020 August 2023 Subordinated
In August 2023, the Group received
£1.3million from the historic sale of an asset
in respect of the Co-living group loan, a
further update on the Co-living group loan is
included on page 20.
Total/weighted
average £49.2m 8.51% 9.04%
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. The IRR
1
for asset nance loans does not include the associated costs of hedging foreign exchange exposure.
Portfolio rotation
The portfolio has a weighted average loan term of ve years which allows for the rotation of capital over a relatively short period of time in a continuation
scenario. This enables the Investment Manager to maintain a diversied portfolio of investments which reect the prevailing market risk-adjusted rates
ofreturn.
Repayments of £93.5 million were received by theCompany during the year. The table below sets out the top ve full repayments received during the year
and a description of the loans redeemed.
18
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Construction projects
The portfolio has 18% direct exposure to
projects under construction at the year end.
This continues to provide positive portfolio
diversication, often representing higher yield
investments to reect construction risk, with
completed assets giving the Group exposure
to substantially de-risked operational projects.
Afurther 5% of the portfolio is exposed indirectly
to construction projects through one land
development project and two borrowers that
offer bridging and development nance.
Across the portfolio, construction projects in the
year include:
— a purpose-built care home in an undersupplied
area of South Wales;
— an exclusive development of luxury homes
outside London;
— student accommodation projects in Australia;
and
— co-living developments in the USA.
Assets under construction are potentially at
increased risk of cost overruns in a high ination
environment. Following on from the prior year,
cost ination continued through the rst half of
the year until a general slowdown in the nal half
of the year.
All the construction projects in the portfolio are
under xed-price construction contracts, with
one asset in construction experiencing marginal
cost overruns. However, the Investment Manager
has not seen any negative impacts on the loan
positions as a result of cost overruns.
In the due diligence process for construction
projects, the Investment Manager considers
the creditworthiness and suitability of the
construction counterparty of the relevant
project as a key factor in the investment process.
Investment activity
The Investment Manager has historically actively
managed a pipeline of investment opportunities
available to the Group to ensure the efcient
deployment of capital. However, during the year
investment activity was intentionally limited,
with capital resources reallocated to repay
the £50.0million RCF in full and to provide
shareholder value such as buying back shares.
Furthermore, following the cessation of
discussions relating to the Scheme on
18September 2023, the Board restricted the
Company’s investment activity, such that no
investments would be made ahead of the
Discontinuation Vote at the 2024 AGM, with any
material amendments or extensions to existing
borrowers requiring the Board’s consent.
The Investment Manager strongly believes that
the Company’s outlook for continuation in its
current form is positive, and the outlook for
private credit remains strong. Periods of market
volatility and economic uncertainty benet
non-bank lenders that are not subject to capital
charges and reserve requirements, all of which
have increased. Similarly, the returns available for
private credit look increasingly attractive on a
relative basis when compared with asset classes
such as equities, which have not been repriced to
the same extent as private credit.
Over the next 24 months, the Company is
forecast to receive signicant contractual
repayments from its portfolio. Given the changes
in the market backdrop, the Investment Manager
intends to re-focus the portfolio on fewer core
asset backed sectors as part of the opportunity
to reset risk and return that the current market
provides in a continuation scenario.
Further information on the portfolio repayment
prole is provided on page 22.
Strategic report
19
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Asset updates
The Board and Investment Manager continue
working to resolve the eight watchlist and
problem loans. Atthe year end, these loans
represented 14.9% of NAV or 16.2% of the
portfolio by value.
Six of the Group’s 42 loans which are with
borrowers for projects in which certain directors,
ofcers and/or shareholders of the Investment
Manager have an equity interest.
Problem loan 1: Co-living group loan
(£1.2million, 0.3% of fair value of the
portfolio)
Background
Co-living is a maturing sector in the private
residential rental market. It offers high-quality
and purpose-built accommodation alongside
extensive community amenities, combining
private studio apartments with larger shared
spaces. Residents pay a single fee for rent and all
utilities and services on exible length contracts,
at a price point below comparable market rent.
Co-living accommodation typically targets recent
graduates and young professionals looking for
short-term, high-quality accommodation.
The Company made its rst loan to the Co-living
group in March 2017, which consisted of an initial
investment of £5.3 million, and increased over
time to support the Co-living group’s growth
across multiple properties. In late 2019, the
Investment Manager was approached with a
proposal to enter a larger facility alongside
Deutsche Bank, the ‘Lender group’. Under the
new facility, the Company held commitments
of c.38% of the total facility of £140.0 million
(£52.8million) which comprised three tranches.
Only the rst tranche of this facility was drawn
due to the impact of Covid-19. Upon entering the
loan agreement, the Company’s total exposure to
the Co-living group reduced from £48.5 million to
£30.0 million. However, the Co-living group’s total
borrowing, which was across multiple lenders,
increased because of the transaction.
Driven by the challenge of operating under
Covid-19 restrictions, as well as the Co-living
group’s inability to access further secondary
funding for development sites, there was a
breach in the liquidity covenant in May 2021.
Asaresult, the Lender group stepped in to
progress the sale of the Co-living group.
Unfortunately, there were several failed sale
attempts of the Co-living group. To realise the
maximum value of the assets, the Lender group
established a ‘Bidco’ to transfer key assets out of
the Co-living group to aid stabilisation and sale.
Current position
During the year, there were further write-downs
of the Co-living group loan from £4.4million
at 31December 2022 to £1.2million at
31December2023, representing the estimated
recoverable value of the Group’s position in the
opinion of the independent Valuation Agent
based on analysis provided by the Investment
Manager. Total impairments against the loan of
£38.2 million account for 89% of the cumulative
impairments made against the Group’s assets
since IPO and make up a large proportion of the
annualised loss ratio of 0.50%.
Over the past year, the Lender group completed
the last USA asset sale, predominantly marking
the end of the workout process. Subsequently,
the administration of key companies in the
original borrower group concluded, and the
companies were dissolved. As a result, the
Company received a net recovery payment
of £1.9million. In the prior year, the Lender
group sold its interest in the London-based
development asset, Canary Wharf. The remaining
London asset, Old Oak, has stabilised but there
are ongoing re safety works, in light of which
no recovery to the Company is expected as
a result of the assets’ sale. The Group has no
residual economic interest in this asset, which is
reected in the valuation at 31December2023.
The value of the Co-living group loan is based
on the recoverable amounts held in escrow,
the release of which is dependant on HMRC’s
ruling on VAT, as well as the decision of Tower
Hamlets Local Authority on planning. An adverse
HMRC ruling or failure to obtain change in
use permission could result in all or some of
the retention not being released. The current
valuation assumes a 50% recovery of the
retention amount. There have been no updates
which have changed the independent Valuation
Agent’s view on the recoverability of the
amounts. Thus, the current assumption of 50%
recoverability continues to hold in theirview.
Problem loan 2: Social housing (£12.6 million,
3.5% of fair value of the portfolio)
This loan has experienced persistent covenant
breaches, failing to meet repayment obligations
which stem from issues with one of the
Registered Providers. An initiative is underway
by the Investment Manager to exit 46% of the
exposure by value via a disposal. Efforts to
determine an exit strategy for the remaining
54% exposure by value are continuing. The
independent Valuation Agent decreased the fair
value of the loan by £3.3 million at 31 March 2024
reecting short and medium-term uncertainty
in the cash ows of the impacted Registered
Provider, as well as the increased discount rate
on that portion of the loan. At the year end,
overdue interest amounts were £1.0 million,
ofwhich £0.1 million has been received post
yearend.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
20
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Problem loan 3: Multi-use community
facility (£1.9 million, 0.5% of fair value of
theportfolio)
The Investment Manager’s negotiations with
the landlord post year end conrmed that the
improved nancial position of the food and
beverage space was dependent on a revised
sales and marketing strategy. These negotiations
concluded that the Investment Manager’s
previous cash ow forecasts, supporting the
value of the long lease with the current operator,
were unlikely to be realised in the absence
of continued capital support by the landlord.
A revised exit strategy is currently under
negotiation with the borrower. The independent
Valuation Agent decreased the fair value of the
loan by £1.2million in the 31March2024 valuation,
reecting the change in strategy. At year end,
overdue interest and principal amounts were
£3.6million, of which £nil has been received post
year end.
Problem loan 4: Conicted property loan in
Boston, USA (£2.3 million, 0.6% of fair value
of the portfolio)
This conicted loan was classied as a watchlist
loan for the purpose of the 31 December 2023
NAV, based on the Investment Manager’s view at
the time that full recovery was likely, particularly
given continued investment in the site by the
borrower to achieve the required planning
permission. Subsequently, the Investment
Manager received an updated asset valuation
which conrmed a reduction in the value of
the property secured against the loan. Given
the risk that planning consent may not be
achieved, and the borrower missing capital and
interest payments in April and December 2023
respectively, the loan has been reclassied as a
problem loan. Reecting risks in the full recovery
of the loan, the independent Valuation Agent
decreased the fair value of the loan by £1.2 million
at 31 March 2024. At year end, overdue interest
amounts were £0.1 million, of which £0.1 million
has been received post year end.
Watchlist loan 1: Conicted student
accommodation loan in Australia
(£22.6million, 6.2% of fair value of the
portfolio)
This conicted loan did not repay on the
re-scheduled maturity date of 31 December2023
and has missed interest payments since
June2023. Negotiations with the borrower to
reach an agreement on an extension of the term
of the facility to 31 December 2024, which will
allow a sale of the underlying assets, are ongoing.
The independent Valuation Agent decreased
the fair value of the loan by £0.6 million at
31March2024. At year end, overdue interest
andprincipal amounts were £22.8 million, of
which £nil has been received post year end.
Watchlist loan 2: Multi-use community
facility 2 (£3.9 million, 1.1% of fair value of
the portfolio)
This loan was classied as a watchlist loan for
the purpose of the 31 December 2023 NAV. As
the facility is a seasonal business, it has higher
revenue in the summer months than in the winter.
The operator has continued enhancing the
on-site performance, which has generated mixed
results. The Investment Manager is continuing
to monitor the on-site performance, updating
forecasts where necessary. For the purpose of
the 31 March 2024 valuation, the independent
Valuation Agent recommended the adoption
of the Investment Manager’s revised forecast,
and has maintained the 13.0% discount rate to
reect the continued level of uncertainty. The
independent Valuation Agent decreased the fair
value of the loan by £1.1 million at 31 March 2024.
The valuation assumes the facility will mature at
the end of the current lease term in 2032. At year
end, overdue interest and principal amounts were
£nil.
Watchlist loan 3: Football nance
(£0.5million, 0.1% of fair value of the
portfolio)
The independent Valuation Agent has recognised
a downward revaluation of £0.7 million in the
fair value of the unguaranteed portion of the
loan at 31 December 2023, due to uncertainty
around repayments which are dependent upon
the football club being sold in the future and
the proceeds received. The interest rate on the
loan also reduced from 10% to 4% as part of the
restructuring of the syndicated loan. Therefore,
the discount rate for determining the fair value of
the guaranteed portion of the loan was reduced
to 4%. At year end, overdue interest and principal
amounts were £nil.
Watchlist loan 4: Conicted co-living
accommodation in Boston, USA
(£14.2million, 3.9% of fair value of the
portfolio)
This conicted loan was not classied as
a watchlist loan for the purpose of the
31December 2023 valuation as the asset
valuation in progress at that time was expected
to remain within the loan’s LTV covenant.
Subsequently, the Investment Manager received
an updated valuation conrming the value
of the property had reduced, representing a
breach of the loan covenant. Given a further
missed interest repayment in December2023,
the loan has been classied post year end as
a watchlist loan. Theindependent Valuation
Agent decreased the fair value of the loan
by £1.1million at 31March2024, reecting an
increase in the discount rate from 12.7% to 15.0%,
and an assumed delayed repayment date of
31December2024. At year end, overdue interest
amounts were £0.4 million, of which £nil has been
received post year end.
The total downward revaluations at
31March2024 of problem and watchlist loans
were £8.5 million. Further information on amounts
received post year end can be found in note 19.
Strategic report
21
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
1. Includes the assumed receipt of £32.5 million of repayments that were due on or prior to 31 December 2023, of which, at the date of the report, £0.8 million has been received
by the Company and the remainder of which includes three watchlist or problem loans (as further described on pages 20 and 21) and reects the Investment Manager’s
expectation of the timing and quantum of the repayment of such loans.
2. Includes watchlist loan 4 which was designated as watchlist post year end. Refer to page 21 for further information.
Portfolio contractual repayment prole
At 31 December 2023, the Group was invested in a portfolio of 42 asset backed loans with a weighted average maturity of ve years.
The current contracted cash repayment prole of the portfolio, including the repayment of historic and future forecast capitalised interest, and provisions
for certain watchlist or problem loans as advised by the Investment Manager, is shown below.
The repayments detailed in the table below are principal amounts only. For information on the contracted cash ows including interest receipts, refer to
note 17.8 to the nancial statements. All gures relating to the portfolio are at 31 December 2023.
Years to maturity
Contractual
repayments due
(£m)
% of total
repayments
(cumulative)
Repayments
of watchlist or
problem loans
(£m)
0 to 1 year 187.3
1
48% 41.7
2
1 to 2 years 12.2 51% 0.6
2 to 4 years 71.4 69% 1.5
4 to 10 years 55.2 84% 14.1
10 to 20 years 57.5 98% 16.4
20+ years 6.2 100% —
Repayments
In respect of the information set out above, there can be no guarantee that loans will be repaid in accordance with contracted terms or that loans
scheduled for repayment in 2023 will be repaid within the period assumed above. Borrowers may not repay on time (or at all) and their ability to service
debts may be impaired from time to time. Borrowers may elect to repay loans before contractual maturity (in full or in part) and may exercise permitted loan
extensions. The Group may also extend the term of a loan at the Board’s discretion to maximise value for shareholders.
At 31 December 2023, eleven loans, totalling 22.5% of the fair value of the portfolio, ten property and social infrastructure loans and one asset nance
loan, including two problem loans (1.0% of portfolio) and two watchlist loans (10.1% of portfolio), have missed interest and/or principal payments and
therefore remain outstanding beyond their contractual maturities. In the case of the property and social infrastructure loans, this is as a result of asset
sales or renancings (required to generate liquidity to service bullet repayments) not being achieved within the originally expected timeframes. This does
not necessarily mean there is a change in the credit quality of the underlying asset and/or the Investment Manager’s expectation of receiving an eventual
repayment in full. The Investment Manager is proactively working with all borrowers and have agreed or is considering short-term extensions to facilitate
an orderly redemption of these facilities and the settlement of interest due, where appropriate.
22
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Valuation
There can be no assurance that the current
valuation of the loans to which the Group is
exposed can be achieved. Loans made by the
Group to eight borrowers and representing 16.2%
of the portfolio by value have been categorised
by the Investment Manager as watchlist or
problem loans. The circumstances around
such loans have been considered by the Board
and the independent Valuation Agent. These
circumstances have also been considered in the
valuation of such loans in the quarterly valuation
process and associated NAV.
Post year end, a conicted loan in the social
infrastructure sector (4.4% of the fair value
of the portfolio) has been reviewed by the
independent Valuation Agent and, as a result
of increased risk associated with the valuation
of the underlying social infrastructure asset,
the discount rate was increased to 16.0%
(31December 2023: 11.5%). This increase in
the discount rate has resulted in a downward
revaluation of c.(£1.7 million) at 31 March 2024.
Of the Group’s 42 loans, six are with borrowers
for projects in which certain directors, ofcers
and/or shareholders of the Investment Manager
have an equity interest. Further detail can be
found on pages 21 and 37 and in the portfolio
information on pages 140 and 141.
Across the portfolio, the Group has exposure
to real estate markets. Approximately 88%
of the Group’s loans by portfolio value are
exposed to property, including loans exposed
to property in social infrastructure sectors
such as student accommodation, social housing
and care homes. The portfolio includes direct
exposure to seven projects that are under
construction, representing 18% of the portfolio
value at the year end. A further 5% is exposed to
construction projects either through one land
development project or three borrowers who
are development nance companies. Further
information on the portfolio can be found on
pages 140 to 141.
Capital structure
The portfolio includes subordinated loans which
are subordinate to the borrowers’ senior debt.
Such loans represent 32% of the portfolio value.
Assuming all loans repay in accordance with
their contractual terms, with loans scheduled
for repayment in 2023 repaid no later than
31December 2024, in the event of an Orderly
Realisation, c.69% of principal outstanding at
31 December 2023 (including cash held by the
Company) is scheduled to be repaid by the end of
the nancial year ending 31 December 2027.
Amounts realised are expected to come from
contractual repayments by borrowers as the
Company’s loans mature in accordance with their
contractual terms and from the sale of portfolio
assets, including longer-dated loans.
There can be no guarantee that the Company’s
loans will be repaid in accordance with
contractual terms. Borrowers may not fully repay
the principal amounts contractually owed, may
not repay on time (or at all) and their ability to
service debts may be impaired from time to time.
Further, proceeds from the sale of any assets
may not be achieved at their carrying value
2
.
1. The classication of the Company’s senior or subordinated security is determined from the terms of the facility agreement with each borrower. However, in some cases,
theborrower may utilise the Company’s senior ranking loan for the purpose of lending to a third party, and for which on a look-through basis, the Company’s reported senior
security is subordinated. In such cases, the independent Valuation Agent fair values the Company’s loan as a subordinated loan.
2. This is a target only and does not constitute a prot forecast.
Strategic report
23
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Target sector updates
1. Refer to page 50 for further information.
SDG alignment
1
£139.7m
Valuation of sector within
theportfolio
38%
Percentage of portfolio
byvalue
Structural characteristics
— Provide core services
— Generate stable cash ows
— Require longer-term funding solutions
— Can benet from partial RPI/CPI
protections
— Benet from supply/demand imbalances
in particular geographies
Current investments
— Supported living
— Care homes
— Student accommodation
— Multi-use community facilities
Investing in the social infrastructure space is
a core component of the Group’s investment
activity. The Investment Manager has targeted
investments in areas where structural demand
has been identied. Due diligence in this sector
includes a focus on management teams, demand
demographics, regulatory landscapes and the
ESG impact of projects.
Social infrastructure asset operators have faced
higher costs in the past twelve months due to
inationary pressures. The most acute cost
increases relate to energy, along with higher
wages and salaries. However, in some cases, the
Group’s borrowers have sought to pass on the
cost increases where possible.
During the year, the Group’s two multi-use
community facilities experienced a mixed
performance. The larger of the two assets has
demonstrated improved performance, following
a change in ownership and operation in 2022 and
an infusion of capital into the business to improve
the site and generate greater revenue. In the
second half of 2023, the asset began generating
prots as operations stabilised following the
completion of construction works.
A strong sales and marketing strategy has been
implemented, with forecasts showing growth
for the assets in both revenue and prots
throughout 2024. The smaller of the two sites
has experienced strong occupancy levels in its
non-public spaces but the food and beverage
and events areas continue to underperform. The
Investment Manager is working closely with the
operators and other key stakeholders to decide
the best path forward for the asset. Refer to
page 21 for further information on these assets
post year end.
The Group has exposure to a portfolio of
supported living properties. Whilst a portion of
the portfolio is well occupied and paying rent in
full, just under half of the portfolio is facing cash
ow challenges due to the performance of one
Registered Provider who received an enforcement
notice from the Regulator of Social Housing. The
Investment Manager is working closely with the
borrower and the Registered Provider to establish
a solution. This exposure equates to 3.2% of NAV,
and three of the properties have seen a period of
reduced rent.
Care homes within the portfolio have continued
to perform well throughout the year, with the
four operational care home assets reaching
occupancy of 92% at year end. One care
home remains under construction, located in
an area where care provision is signicantly
undersupplied. Poor weather and supply
chain disruptions have pushed the practical
completion date from June 2023 to April2024.
TheInvestment Manager has a strong
relationship with the developer and remains in
contact regarding potential further projects.
The Group’s nursery loans were fully repaid
in the fourth quarter of the year. This was an
early repayment of the facility, with the Group
receiving £34.3million plus a prepayment fee.
The loans in this sector are secured against
assets located in the UK (76%), Europe (8%),
theUS (3%) and Australia (13%).
Assets such as homes for the elderly,
supported living and student accommodation.
Social infrastructure
24
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
SDG alignment
2
2. Refer to page 50 for further information.
£5.6m
Valuation of sector within
theportfolio
2%
Percentage of portfolio
byvalue
Structural characteristics
— Provide core services
— Generate stable cash ows
— Rapidly changing energy system drives
need for ancillary investment
— Capital intensive sector
Current investments
— Solar O&M
The Company has historically invested in
infrastructure that supports a sustainable future.
Throughout the year, the Group’s exposure to
the energy and infrastructure sector decreased,
with full repayments received on three
underlying investments. This included the Group’s
investments in two CNG stations, which provided
alternative fuel for leading UK businesses and
haulage companies. These loans were repaid in
the third quarter of 2023, generating an average
IRR of 9.2%. In the same quarter, full repayment
was also received for an asset in Hong Kong,
providing an IRR of 9.9%.
The remaining investment within the energy and
infrastructure sector is the Group’s solar panel
scheme investment. This provides nancing
secured against contracted payment for
operating and maintaining solar panels.
These contracts are long term and continue to
meet regular principal and interest payments
over the loan life to date. Monitoring of these
loans include updates on the underlying
counterparties and service providers under
the contracts. The asset has consistently
exceeded its initial projections, attributed to
an expanded portfolio of contracts secured
post nancial close, as well as the inclusion of
indexation-linked revenues which increased
contract income by 13.5% in the rst quarter of
2023. Solar performance exceeded its energy
generation targets for three of the four quarters
in the twelve months to 30September2023.
However, while attractive opportunities remain in
the sector, there are no assets in the immediate
investment pipeline.
The loans in this sector are secured against
assetsin the UK.
Assets such as CNG stations
and solar O&M contracts.
Energy and infrastructure
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Strategic report
25
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Target sector updates continued
1. Refer to page 50 for further information.
SDG alignment
£36.2m
Valuation of sector within
theportfolio
10%
Percentage of portfolio
byvalue
Structural characteristics
— Strong contractual protections
— Stable cash ows from xed contracts
— RPI/CPI linkage
Current investments
— Boiler servicing
— Management fee income
— Credit margins against FX trades
— Football nance
— Music royalties
Asset nance represents a variety of sectors for
the Group, encompassing investments in football
nance, management fee contracts, FX contracts
and boiler servicing.
Loans within asset nance are often secured
against long-term contracted income instead
of physical assets. In assessing these loans,
there is a focus on the counterparty risk for the
underlying payments over the life of the loan.
Following additional investments in the sector
in the last quarter of 2022, the football nance
loans have broadly performed well, with the
exception of one loan that was written down in
the fourth quarter of 2023. Refer to pages 20
and 21 for more information on watchlist and
problemloans.
The sector is secured against revenue from
major football leagues in respect to broadcast
revenue or from large clubs in respect of player
transfer receivables. In each loan, there are
signicant contractual, regulatory and market
protections. Over the year, the European football
nance sector has beneted from reduced
listed bond yields and strong underlying revenue
performance across the major European leagues.
The Group also has exposure to foreign exchange
margin call nancing. The loan is secured against
a protable foreign exchange business with a
NAV covenant ensuring an LTV of below 50% on
the loan at all times and is ultimately exposed to
a diverse client pool. Theborrower has exceeded
expectations, with the value of total notional
trades doubling between 2022 and 2023 and
net assets increasing for the year. The asset is
performing well, and the underlying company
continues to grow its business while maintaining
strong credit credentials.
A loan secured against boiler contracts faced
some difculty towards the end of 2023. The
underlying company provides and installs
energy efcient domestic boiler systems for
homeowners in the UK. In exchange for nancing
boilers, the customer enters monthly payment
plans with the borrower that include a buyout
option. Due to heightened levels of buyouts since
nancial close, cash ows have been received
upfront, which has led to a weaker nancial
performance. As a result, a 2% increase in the
discount rate was applied by the independent
Valuation Agent in the 31December2023
valuation.
Elsewhere in the portfolio, loans secured against
music royalties and management fee income
continue to perform in line with expectations.
The loans in this sector are secured against
assets located in the UK (89%) and Europe (11%).
Assets such as FX contracts
and football nance.
Asset nance
26
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
2. Refer to page 50 for further information.
SDG alignment
£181.3m
Valuation of sector within
theportfolio
50%
Percentage of portfolio
byvalue
Structural characteristics
— Secured against physical assets
— Generate stable cash ows
— Short-term nancing
— Well understood and valued sector
Current investments
— Bridging loans
— Buy-to-let
— Co-living
— Land
— Warehousing of buy-to-let
Exposure to property assets, excluding social
infrastructure, remains a key focus for the
Investment Manager. The Bank of England has
increased interest rates during the year in an
attempt to reduce ination, which has had an
adverse effect on the property sector generally.
Ination reduced signicantly in the last quarter
of the year, with the market seeing signs of
stabilisation. However, some discount rates were
increased on property assets to account for the
higher yields and muted transaction volumes
during 2023.
The Group has residential investments in the
USA, of which the largest investment, a 477-unit
co-living building located in Boston, achieved
practical completion during the year, reaching an
occupancy of c.90%. However, it failed to make
its fourth quarter interest payment and, post
year end, it breached an LTV covenant based
on a revised valuation and is now classied as
a watchlist loan, refer to page 21 for further
information. The Group’s second co-living
development in the USA, a 336-bed project, is
progressing well with approximately two-thirds
of the construction completed. Since the start
of the project, there have been signicant
changes in the nancial landscape, including
uctuation in foreign exchange and real estate
capitalisation rates, and changes to the interest
rate environment. Although the projects have
shown strong demand from residents, the assets
themselves have experienced pressure on their
operating costs as a result of high ination which
has increased costs that are provided as part of
the tenant’s services. The Investment Manager is
currently reviewing these aspects in consultation
with the Company’s independent Valuation Agent
to assess their impact.
The Group’s largest UK borrower, which is
focused on bridging and development loans,
also successfully completed origination into
warehousing vehicles and subsequent exits
as part of securitisations (with the largest
completed in 2023) and has grown its funds under
management and platform assets. The underlying
loans maintain strong LTVs and collateral against
which the Group’s loans are secured. The three
outstanding loan maturities have been extended
from 31 March 2024 to the end of June and are
being closely monitored.
The Co-living group loan has undergone workout
developments over the course of the year. For
further information, refer to page 20.
The Investment Manager remains comfortable
that the Group has sufcient headroom against
any decreases in property valuation, with
an average LTV of 66% across its property
exposure. Equally, the Investment Manager
maintains good working relationships with
borrowers in the market, giving access to a wide
range of exit strategies, including conversion
into rental portfolios, sale or renancing.
Changing market conditions could affect the
outcome of these strategies. The Investment
Manager continues to see good opportunities
forinvestment secured against property assets.
The loans in this sector are secured against
assets located in the UK (76%), Europe (7%)
andthe US (17%).
Assets such as nancing for property purchases
ordevelopment and co-living spaces.
Property
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Strategic report
27
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Portfolio summary
Portfolio
The Group’s investments are supported by a
diverse range of assets located predominantly
in the UK. At 31 December 2023, the weighted
average annualised yield
1
was 8.7% across the
portfolio (8.7% excluding the loans held at net
realisable value) with a weighted average term
of ve years (31 December 2022: 8.0% (8.3%
excluding the loans held at net realisable value)
and six years, respectively). In total, 35 loans
have been advanced to Project Companies with
operating assets. The remaining seven loans have
been advanced to Project Companies with assets
under construction (31 December 2022: 50
operating loans and nine under construction).
Investment valuation
The independent Valuation Agent carries
out a fair market valuation of all the Group’s
investments on behalf of the Board on a
semi-annual basis based on information received
from the Investment Manager and other market
data. Any assets which may be subject to
discount rate changes are valued on a quarterly
basis. The valuation principles used by the
independent Valuation Agent are based on a
discounted cash ow methodology.
A fair value for each asset acquired by the
Group is calculated by applying a discount rate
(determined by the independent Valuation Agent)
to the cash ow expected to arise from each
asset, as forecast by the Investment Manager,
determined by contractual arrangements for
each loan.
At the year end, all assets were valued using a
discounted cash ow methodology apart from
the loans held at net realisable value. Further
detail on the valuation methodology is given in
note 17 to the nancial statements.
In the opinion of the independent Valuation
Agent, the weighted average discount rate
across the portfolio at 31 December 2023 was
10.5% (31 December 2022: 8.4%). The valuation of
investments is sensitive to changes in discount
rates applied. Sensitivity analysis detailing the
impact of a change in discount rates is given in
note 17 to the nancial statements.
2 - 4 yrs 19%
>4 yrs 31%
1 - 2 yrs 2%
<1 yr 48%
Rest of
world
15%
Europe 8%
UK 77%
Portfolio by sector type
Property
50%
E&I
Social
infrastructure
38%
Asset
nance
10%
Contract income 6%
FX contracts 3%
Domestic boilers 1%
O&M contracts 2%
Residential property 38%
Co-living 9%
Land 3%
Care home 18%
Student accommodation 11%
Social housing 8%
Multi-use community facilities 1%
2%
Subordinated 32%
Senior 68%
Portfolio by
security ranking
3
8-9% 12%
7-8% 46%
>9% 32%
<7% 10%
Portfolio by
interest rate prole
Portfolio by
location
Portfolio by
term prole
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. The Co-living group loan represents 0.3% of the NAV at 31 December 2023.
3. The classication of the Company’s senior or subordinated security is determined from the terms of the facility agreement with each borrower. However, in some cases, the
borrower may utilise the Company’s senior ranking loan for the purpose of lending to a third party, and for which on a look-through basis, the Company’s reported senior
security is subordinated. In such cases, the independent Valuation Agent fair values the Company’s loan as a subordinated loan.
28
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment portfolio
Care Homes Co 3
1 Social infrastructure
2 4.0%
3 Care home
4 Single asset
Care Homes Co 2
1 Social infrastructure
2 4.3%
3 Care home
4 Single asset
Bridging Co 2
1 Property
2 5.1%
3 Residential property
4 Multi asset
Development Fin
1 Property
2 5.0%
3 Residential property
4 Multi asset
6 5
7 8
4
10
3
9
Development Fin Co 6
1 Property
2 9.4%
3 Residential property
4 Multi asset
Football Finance 8
1 Contract income
2 3.9%
3 Asset nance
4 Multi asset
Student Accom 2
1 Social infrastructure
2 6.2%
3 Student accommodation
4 Single asset
Bridging Co 1
1 Property
2 5.8%
3 Residential property
4 Multi asset
Key
1 Sector type
2 % of portfolio by value
3 Asset class
4 Multi/single asset exposure
Top ten investments
by value
1 2
Further information on the Group’s portfolio can be found on page 140 and 141, and on the Company’s website.
Student Accom 8
1 Social infrastructure
2 4.4%
3 Co-living
4 Single asset
Property Co 2
1 Property
2 4.1%
3 Residential property
4 Multi asset
Strategic report
29
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Investment portfolio continued
Portfolio optimisation
The Investment Manager has identied a number of strategies which could be used to enhance the portfolio or boost returns in a continuation scenario,
where the Company continues to invest in accordance with its current investment mandate. The Investment Manager is keeping these options under
consideration to continue offering investors optimal returns matched to the risk prole of the portfolio.
Strategy
Sub-participation or
disposalof loans
Extensions and amendments
on existing loans
Moving into senior positions
andnew sectors Use of ination mechanics
Description As exposure in certain
sectors grows, the
Investment Manager can
consider opportunities
to syndicate existing loan
positions to other lenders.
This would allow the Group
to continue supporting key
borrowers whilst releasing
capital for reinvestment.
The Group has utilised this
structure in respect of
one loan secured against
a student accommodation
development.
The current environment may
mean that borrowers look
to extend loans anticipating
better valuation outcomes in
the next 12 to 18months.
Where extensions have been
agreed to date, the Investment
Manager has successfully
negotiated rate increases of
between 2.0% and 3.5%.
Furthermore, follow-on
investments under existing
facilities can also be
considered, enabling attractive
terms to be struck on additional
capital in assets that are well
understood by the Company.
Importantly, when considering
any extensions, the Company
will evaluate the performance
of the borrower to date. This
ensures that any changes in the
facility’s risks are thoroughly
assessed and appropriately
reected in the terms of any
extensions.
Market rate movements have
positioned the Company to be
competitive on more senior
positions. Given the Company’s
appetite for both senior and
subordinated positions, this shift
allows the Company to construct
blended ‘stretch’ positions by
securing rst-ranking security,
rather than subordinating,
while still offering similar
LTV thresholds for a blended
interest rate. This strategy could
enable the Company to deploy
larger facilities on attractive
transactions that previously
only met return targets through
subordinated investments.
These positions also provide the
Company with greater control
and enhanced protections.
Additionally, the current
market conditions present
an opportunity to reduce the
Company’s risk prole without
sacricing returns, thanks to
the higher lending rates now
available.
Mechanics on 52% of the
portfolio allow for adjustment
of rates and/or principal, based
on changes in bank rates or
ination rates.
Ensuring these mechanics are
included on longer-dated loans
in the portfolio provides a form
of future protection against
inationary increases.
Risks to the
Company
— Introduction of third
parties could result in
competition on assets
and reduced control.
— Lower rotation into new
sectors could impact on
ability to access future
pipeline deals.
— Senior positions have
historically been at lower
returns.
— ‘Stretch’ senior positions are
typically at higher LTVs, akin to
subordinated investments.
— Some mechanics may not
be possible to enforce if
the borrower’s businesses
cannot support additional
debt.
Benets
to the
Company
— Boost returns.
— Reduce borrower
concentration risk.
— Allow for reinvestment
into new loans.
— Boost returns.
— Allow for rapid
reinvestment, often
intode-risked and
stabilisedassets.
— Diversication across
portfolio.
— Improved security coverage.
— Improved risk-adjusted
returns.
— Provides hedging against
interest rate movements.
30
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
1. Past performance is not a guide to future performance.
2. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
3. The Company makes its investments through its wholly owned Subsidiary. Refer to note 1 to the nancial statements for further information.
4. Includes development projects that were subject to review by the Board under the Company’s investment approval process; refer to page 19.
Portfolio performance
The portfolio currently consists of 42 loans across 18 discrete asset classes, providing investors with a diversied portfolio of assets. Over the life of the
Company, the aggregate annualised impairments that have been recognised equal 0.5% of amounts invested, with 89% of such impairments attributable to
the Co-living group loan
1
, having invested over £1.0billion in multiple asset backed sectors.
The Company’s investment objective is designed to provide investment performance that is not correlated with wider markets. This has been challenged
throughout a period of signicant market volatility: the exit of the UK from the EU; the Covid-19 pandemic; the onset and continuation of war in Europe and
associated impact on energy costs; and more recently a period of higher ination and interest rates. Whilst the majority of the Group’s investment portfolio
has demonstrated resilience to wider market volatility, the performance of some of the loans has been impacted. Refer to pages 20 and 21. Key learnings
have been taken from these loans which will help support the successful evolution of the Company’s investment approach in a continuation scenario.
Through a difcult macro-economic environment during the year, eight loans classied as problem or watchlist loans have proved challenging, with specic
negotiations of revised terms ongoing. Refer to the asset updates on pages 20 and 21 for further information. Notwithstanding these challenges, 34 loans
in the portfolio, representing 84% by value, performed in line with the Investment Manager’s expectations. The dividend continues to be fully covered on an
adjusted EPS
2
basis. The dividend was 0.68 times covered by an EPS of 4.27 pence and 1.11 times covered by an adjusted EPS
2
of 7.02 pence.
Key investment highlights
The Group made 18 advances during the year totalling £32.7 million (including planned capitalised interest of £7.7 million), comprising one loan to a new
borrower and 17 follow-on investments to existing borrowers. From these advances, one was in the energy and infrastructure sector, eleven in property
and six in social infrastructure projects. The Group received capital repayments of £93.5 million, along with prepayment fees of £1.2 million.
Post year end, the Group received 22 repayments totalling £41.4 million. There are £nil investment drawdown commitments at the date of the report.
Investments and repayments made during the year
3
Sector Average term Security Status Investments Repayments
Asset nance 3 years Senior Operational — £17.6 million
Energy and
infrastructure
2 years Senior Operational/construction — £10.1 million
Property
4
2 years Senior/subordinated Operational/construction £20.3 million £29.5 million
Social
infrastructure
7 years Senior/subordinated Operational/construction £12.4 million £36.3 million
Total £32.7 million £93.5 million
Investments and repayments made post year end
3
Sector Average term Security Status Investments Repayments
Asset nance 2 years Senior Operational — £2.5 million
Property 1 year Senior/subordinated Operational/construction — £32.9 million
Social
infrastructure
11 years Senior Operational — £6.0 million
Total — £41.4 million
Strategic report
31
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Investment Manager’s report continued
Investment Manager update
In July 2023, Joanne Fisk, the co-fund manager
of the Company, resigned from the Investment
Manager. Further, in December 2023, Saira
Johnston, the Chief Financial Ofcer of the
Investment Manager and an investment committee
member, also resigned from the Investment
Manager. Ms Johnston’s role was lled by internal
appointments within the Investment Manager that
are known to the Company.
In October 2023, the Investment Manager
appointed Anthony Curl as Chief Investment
Ofcer. Mr Curl will be supporting the ongoing
provision of services to the Company alongside
Philip Kent and the wider team and has also joined
the Investment Manager’s investment committee.
He has a long and successful track record in the
long income and credit sectors, joining the rm
from Alpha Real Capital, where he was co-head of
long income, managing several investment teams
for strategies including social infrastructure and
commercial ground rents.
Post year end, in January 2024, the Investment
Manager announced the appointment of
Albane Poulin as its new Head of Private Credit.
MsPoulin joins from abrdn where she was Head of
European Private Placements, as well as the lead
fund manager of the Secure Income and Cash
Flow Fund, investing in a range of private credit
asset classes. In her new role, she will oversee
the Investment Manager’s activities in private
credit as well as leading new strategies in this
asset class.
Mr Curl and Ms Poulin join Philip Kent on a
permanent basis with the support of twelve
full-time professionals. The wider team provides
dedicated and shared credit investment
resources, dedicated portfolio management,
as well as investor relations, nance, legal,
compliance and administrative services.
The Investment Manager benets from an
experienced investment team that is responsible
for over £4.2 billion of investment in the
infrastructure, real asset and real estate debt
sectors since 2008. Biographies of key personnel
at the Investment Manager are listed on pages 78
and 79.
The Company continues to benet from
the breadth and depth of experience of the
Investment Manager’s investment committee.
The Investment Manager benets from its
strategic relationship with ORIX Corporation,
which acquired 70% of the business in 2021. ORIX
is publicly traded in Tokyo and New York, with a
market capitalisation of c.¥3.9 trillion at the date
of the report and assets under management of
¥55 trillion at 31March 2023, including signicant
credit and asset management businesses in
Japan, Asia more widely, the US and Europe.
Investment management arrangements
It is the Board’s current intention, subject to
the outcome of the Discontinuation Vote and
agreement of revised terms, that the Investment
Manager is retained to provide investment
management services in connection with the
Orderly Realisation. The Board considers the
Investment Manager to be best placed to provide
such services, taking into account its knowledge
and experience of the Company’s investment
portfolio.
To this effect, the Board has commenced
discussions with the Investment Manager
in respect of proposals for the provision of
investment management services during the
Orderly Realisation under revised terms that seek
to incentivise the Investment Manager to achieve
the objective of maximising shareholder returns
in a timely manner.
In due course the Investment Manager will
engage with shareholders to present its plan
forthe Orderly Realisation of the Company.
Further information will be set out in the Orderly
Realisation Circular which will be published on
2May 2024.
32
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Ination
Ination in the UK subsided throughout the year,
with the Consumer Prices Index (“CPI”) rising by
4.0% in the twelve months to 31December2023.
This is down from its peak of 11.1% in October2022;
however, the rate is still materially above the Bank
of England’s target rate of 2.0%.
Throughout the year, in a bid to reduce ination,
the Bank of England continued with successive
base rate increases, reaching 5.25% in August2023,
where it was held for the remainder of the year.
Whilst there is a lag between market movements
and the Group’s investment activity, the Group
is able to respond to the macro-economic
environment in a number of key ways:
— including ination and/or base interest rate
linkage mechanics in the portfolio. These
mechanics are set out in more detail on
page30 and provide a level of protection
against market movements; and
— re-investment of loans at prevailing rates.
Given the weighted average duration of the
portfolio is ve years, the Group is able to
reset rates in the portfolio over a relatively
short time period. Over the year, the average
IRR
1
on the top ve repayments was 9.04%,
with one new investment made at a yield
of8.25%.
In total, 52% of the portfolio by value has partial
ination and/or interest rate protection through
three different mechanisms:
— direct interest rate linkage to CPI, RPI
(primarily for social housing assets) or Bank
of England base rate (for property assets with
senior lending lines);
— indirect linkage through principal indexation
(which increases principal when RPI or CPI
rises above a certain level); and
— share of any upside generated in project SPVs
through prot-sharing mechanisms or share
warrant structures.
The Investment Manager works closely with
borrowers when applying these mechanisms to
ensure they are appropriate and do not place
undue pressure on a borrower’s business model.
To date these mechanics have been applied to
all loans where the contractual triggers have
been met except in two instances: one where the
Subsidiary holds the equity position, so there was
no benet in doing so, and one where the loan
had amortised ahead of schedule so the impact
of triggering the increase would have been
minimal.
In the year, these mechanics had the following
impacts:
— yield movements: increases in the Bank of
England base rate during the year meant
that 16 loans were subject to rate increases.
Increases were an average of 80 basis points
over the year on these loans; and
— NAV movements: correspondingly, increases
in yield as well as principal indexation on ve
loans offset some of the decreases in NAV due
to discount rate increases. Theindependent
Valuation Agent does not typically forecast
any future increases in rates or loans due to
ination, due to the discretionary nature of
applying these mechanics.
There is no doubt this year has been one
of signicant market change. However, the
Investment Manager is pleased to see the
positive impact these strategies and mechanics
have had on the portfolio.
Ination remains a key area for the Investment
Manager to monitor, particularly regarding
its effect on operational assets facing cost
challenges.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Strategic report
33
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Financial review of the year
The Company has generated total
income of £26.3 million and paid
dividends of 6.325 pence per share.
The total shareholder return
1
for
the year was -14.1% and total NAV
return
1
was 5.0%.
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
34
Financial performance
The Company has experienced signicant
challenges throughout the year, primarily due
to prevailing market factors. These factors,
combined with increased volatility in the UK
economy, have contributed to the Company’s
shares trading at a persistent discount
1
to NAV.
The Investment Manager has continued to focus
on the problem and watchlist loans during the
year. Further information can be found on pages
20 and 21.
Income
In the year to 31 December 2023, the Company’s
portfolio generated interest of £31.7 million
(31December 2022: £31.9 million), broadly in line
with the prior year.
Other income of £1.5 million (31December2022:
£1.5 million) was generated which included
prepayment fees of £1.2 million in respect of
loans prepaid in the year (31 December 2022:
£0.8million). The amounts received during the
year included prepayment fees in respect of
loans to a nursery provider and loans to a CNG
station operator.
Total income was offset by net valuation losses of
£7.4 million primarily due to further write-downs
of the Co-living group loan, sector-based
discount rate increases and other fair value
movements applied by the independent Valuation
Agent. Further information is given in the
Investment Manager’s report on pages 20 to 23.
The Company invests in derivatives for
investment purposes and efcient portfolio
management. Overall net gains on derivative
nancial instruments for the year were
£0.5million (31 December 2022: losses of
£0.8million). Further information is given in
notes3 and 17 to the nancial statements.
Expense
The Company incurred total expenses of
£5.3million (31 December 2022: £5.7 million)
which include the Investment Manager’s fee,
other third party service provider costs and
Directors’ remuneration. Total expenses have
decreased compared with the prior year,
reecting a decrease in variable fees due to
a reduction in NAV and the reimbursement
of arrangement fees. This was offset by
professional costs in respect of various strategic
incentives considered during the year, including
the Scheme, where the fees connected to this
were met by the Investment Manager. Further
information on expenses is given in notes 18, 4
and 6 to the nancial statements respectively.
Finance costs have increased signicantly
compared to the prior year. The Company utilised
its RCF for a large portion of the year, with an
average utilisation of 71%. Interest on amounts
drawn under the RCF are charged at the rate of
SONIA plus 2.1%. SONIA has increased by 1.8%
to 5.2% since the prior year end. The Company
repaid the RCF in full on 18 December 2023 in line
with the Board’s stated aim of reducing leverage.
At the year end, £nil was drawn (31 December
2022: £31.9 million). Further information on
the RCF is given in note 14 to the nancial
statements.
Total prot and comprehensive income for
the year was £18.3 million, an increase from
£7.7million in the prior year.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Strategic report
35
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Financial review of the year continued
Dividends
The Company paid 6.3 pence per share in interim
dividends. The total dividend was 0.68 times
covered by EPS of 4.27 pence for the year and 1.11
times covered by an adjusted EPS of 7.02 pence.
Should the proposals set out on page 5 be
approved by shareholders it is the Board’s
current intention to maintain the Company’s
existing level of dividend of 6.325 pence per
annum whilst the Company remains substantially
invested, for as long as is practicable
3
.
Further information on dividends is given in note
9 to the nancial statements.
Ongoing charges
The Company’s ongoing charges ratio
2
,
calculated in accordance with the AIC
methodology, was 1.3% (31 December 2022: 1.2%)
for the year to 31December 2023.
Earnings
The Company generated EPS of 4.27 pence
(31December 2022: 1.75 pence). As noted
previously, adjusted EPS for the year was 7.02
pence per share (31December 2022: 6.58 pence),
which more than fully covers the dividend of 6.3
pence per share for the year.
Adjustments to discount rates result in the
revaluation of investments, which are reected
through fair value movements in the statement of
comprehensive income, in accordance with IFRS
Accounting Standards.
NAV and share price
Net assets attributable to equity holders
at 31December 2023 were £396.7million,
decreasingfrom £412.0 million at
31December2022. The Company’s NAV per
ordinary share decreased from 94.90 pence
at 31December2022 to 93.21 pence at
31December2023.
Prior to the market volatility seen since the onset
of the Covid-19 pandemic in March 2020, the
Company’s shares have predominantly traded at
a premium to NAV since the Company’s IPO in
2015, with an average premium of 3.3%.
Since March 2020, the Company’s shares
have predominantly traded at a discount to
NAV, with an average discount of 12.8%. The
current geopolitical and market uncertainty has
negatively impacted the Company’s share price
this nancial year, with shares trading at an
average discount of 29.6%. At the date of the
report, the Company’s shares are trading at a
c.25% discount to NAV.
94.900.20
99.29
2.95
0.34
7.42
0.35
(1.73)
(1.33)
(0.23)
(6.32)
0.11
(1.24)
(0.64)
(6.33)
0.37
93.21
NAV per share at
31 December 2023
Share buybacks
Dividends
Finance costs
Running costs
Net gain on derivative
nancial instruments
Gains/losses
on investments
Other income
Loan interest
realised
NAV per share at
31 December 2022
Share
buybacks
Cash
dividends paid
Finance
expenses
Running costs
Arrangement
fee income
Prot on
investments
NAV per share at
31 December 2021
104
92
96
94
98
100
102
(pence)
NAV analysis – year ended 31 December 2023 and 31 December 2022
1. Total dividends of 6.325 pence per share includes a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
2. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
3. This is a target only and does not constitute a prot forecast.
36
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Share repurchases
The Company continued its share buyback
scheme during the year to demonstrate
support for the share price and benet from
the consequent accretion to NAV. A total of 8.5
million shares were repurchased, at a cost of
£6.5million, during the period to 23 June 2023
at a weighted average price of 78.85 pence per
share, generating 0.38 pence in NAV accretion
to the Company. No buybacks occurred in
the second half of the year while work was
undertaken on the Scheme and the subsequent
Strategic Review. At 31December 2023, there
were 442.0 million ordinary shares in issue, of
which 16.4 million were held in treasury.
Conicts of interest
In the year, £3.5 million of planned capitalised
interest was recognised in respect of six of the
Group’s loans which are for projects in which
certain directors, ofcers and/or shareholders
of the Investment Manager have an equity
interest. The total principal value of these loans
at 31 December 2023 (including accrued and
capitalised interest) was £75.0 million with a fair
value of £74.6 million, representing 20.6% of the
fair value of the investment portfolio. Further
information is given in the portfolio information
on pages 140and 141.
In accordance with the Company’s investment
approval process, the initial investment, and
any subsequent amendments to the terms of
projects in which directors, ofcers and/or
shareholders of the Investment Manager have
an equity interest, are reviewed and approved by
the Board.
Where there is overlap for a potential investment
with GCP Infra, a third party company advised by
the Investment Manager, GCP Infra has a right of
rst refusal over such investment. GCP Infra has
not exercised this right of rst refusal since the
Company’s IPO.
Cash position
The Company received interest payments
of £31.7million and capital repayments of
£93.5 million from its Subsidiary in the year
(31December 2022: £31.9 million and £95.6million
respectively). The Company paid cash dividends
of £27.0 million during the year and a further
£6.7 million post year end (31 December 2022:
£27.8 million and £6.8 million respectively).
The Company advanced £32.7million
(31December2022: £102.0 million) to the
Subsidiary to make investments in accordance
with the investment policy. Further information
isincluded on page 31.
Post year end, the Group received repayments
totalling £41.4 million. There were £nil investment
commitments at the date of the report. Total
cash reserves at the year end were £30.9 million
(31 December 2022: £10.3 million).
Capital repayments
from Subsidiary
93.5
16.0
(32.7)
(48.1)
28.8
RCF repayment
Increase in
cash resources
RCF drawdown
Investment in
Subsidiary
120.0
0
40.0
100.0
80.0
60.0
20.0
(£m)
Financing analysis – year ended 31 December 2023
Strategic report
37
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability
The Company aims to operate a
viable, long-term business model
with the intention of beneting
society whilst positively impacting
the environment.
38
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability is now a standard criteria
considered by investors during the investment
process. The increased focus on sustainability
across the asset management landscape
has created new challenges for companies
surrounding the creation of sustainable value
and the implementation of ESG strategies. It has
also led to the introduction of regulation and an
increase in sustainable reporting frameworks
to enhance transparency and accountability in
reporting. These frameworks allow investors to
assess whether ESG commitments are being met.
The Board and the Investment Manager are
committed to ensuring the Company’s ESG
disclosures, to the extent possible, reect the
Company’s impact. This helps drive increased
consistency in reporting across the industry, and
also ensures the integration of ESG factors into
day-to-day operations.
As such, the incorporation of the Principles of
Responsible Investment (“PRIs”), as adopted
by the Investment Manager into investment
decisions and investment management
processes, is an important consideration for
theBoard.
The Company has an ESG policy and framework
in place which guides how ESG issues are
considered throughout the Company’s
operations and is used to guide decisions,
processes and policies where possible.
TheCompany aims to operate a sustainable
business model that does not detrimentally
impact the environment while beneting society.
Refer to page 40 for more information.
While the Group does not have an ESG
investment objective, the Board is aware of the
need for increased social infrastructure across
the UK. The social infrastructure sector makes
up 38% of Company’s portfolio, offering homes
for the elderly, supported living, community
facilities and student accommodation. The social
infrastructure sector remains a key component
of the Group’s investment portfolio.
The social housing assets the Company invests in
are designed to meet a range of housing needs
for adults with physical and/or mental disabilities.
The provision of this accommodation makes a
meaningful difference to the quality of life for
vulnerable and disabled residents, the majority of
whom would be faced with hospital or registered
care without the availability of the housing.
Tenants are encouraged to take up, manage and
maintain their tenancies, and are provided with
support in their applications for welfare benets.
While the Company’s exposure to the energy
and infrastructure sector has reduced in
recent years due to full repayments received on
underlying investments, one investment remains.
The loan provides nancing for the operation
and maintenance of rooftop solar panels and is
secured against contracted cash ows. This in
turn contributes to increased renewable energy
capacity across the UK.
Over the year, the Investment Manager worked
to improve its ESG data collection project to
improve data coverage across the portfolio.
Todo so, the Investment Manager simplied its
ESG questionnaire and amended the reporting
period to give borrowers more time to respond.
As a result, the average data coverage increased
to 56% from 34%. Refer to pages 46 and 47 for
more information on the project.
In addition, the Investment Manager recognises
the transitional risk in regulatory changes to
improve energy efciency standards. As such,
it collates data on EPC ratings across relevant
properties in the portfolio. Where EPC ratings
are below a ‘C’ rating, it works with property
owners to understand how the Company can
support work to improve the energy efciency
ofthe properties.
Introduction
Strategic report
39
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
The Company has embedded governance protocols into its business management processes. To develop this further, the Directors have aligned
theCompany’s ESG framework with the PRIs. A summary of the Company’s ESG framework is included below and further information can be found
ontheCompany’s website.
ESG framework
1. Decision making 2. Ownership 3. Partnership
ESG considerations will be part of the
decision-making process
The Company will include ESG issues in its
policies andprocedures
The Company will consider the ESG approach
of companies it chooses to engage with
andinvest in
The Company
Decisions are governed by the terms of
reference of the Board and its committees,
which include ESG considerations.
The Company
The key operating manual and policies
are regularly reviewed to ensure ESG
requirements and considerations are
fullyincorporated.
The Company
Prior to the appointment of each service
provider, full due diligence is carried out on
the provider which includes a summary of
theCompany’s approach to ESG issues.
The portfolio
The Investment Manager takes ESG
considerations into account in its
decision-making processes which are in line
with its Responsible Investment policy.
The portfolio
The Investment Manager has put in place a
Responsible Investment policy which includes
deal screening and ESG due diligence.
The portfolio
Through relationships with borrowers and
appropriate provisions in key agreements,
the Investment Manager will seek access to
appropriate disclosures on ESG issues.
4. Acceptance 5. Enhancement 6. Reporting
The Company will promote acceptance and
implementation of ESG considerations
The Board will ensure the Company’s ESG
framework is maintained
The Company will report on progress against
its ESG framework and other external
applicable frameworks
The Company
The Board promotes acceptance and
implementation of ESG considerations
through engagement with the Company’s
stakeholders and through a review of its
service providers.
The Company
The Board will continue to engage with key
service providers to monitor and assess their
proposals to enhance the Company’s ESG
framework, and seek advice whererequired.
The Company
The Board will provide regular and
transparent reporting to investors on
specic ESG considerations. The Board is also
committed to full compliance with applicable
reporting standards in line with regulatory
requirements.
The portfolio
Through reporting and investor engagement,
the Investment Manager will share progress
on implementation of the PRIs and look
to utilise examples of best practice in the
market.
The portfolio
The Investment Manager will continue to
engage with advisers and stakeholders,
including borrowers, to seek ways to enhance
the ESG framework.
The portfolio
The Investment Manager will report on how
investment processes incorporate ESG,
including incentive mechanisms and any new
transactions in social or energy infrastructure.
40
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Responsible Investment
The Company does not have an investment
objective of sustainable investment nor does
it use ESG criteria to evaluate investments
or assess their social impact within its stated
investment appetite. The Directors do, however,
believe in the integration of Responsible
Investment principles across all aspects of
the Company’s operations. This includes the
application of ESG screening to ensure the
long-term success of the Company and the
success of the sectors in which it operates.
The Company delegates investment management
in accordance with the investment mandate
to the Investment Manager; as such, the key
decisions made by the Board in the ordinary
course of business relate to the Company’s
strategy, stakeholder engagement and oversight
of risk management. Further information can be
found in the TCFD section on pages 54 to 57.
As previously announced, no material
amendments or extensions of facilities to
existing borrowers will be made ahead of the
Discontinuation Vote at the 2024 AGM without
the Board’s prior consent. A procedure has
been put in place between the Board and the
Investment Manager to manage this.
During the year, a number of ESG workstreams
were put on hold following the cessation of
the Scheme and will remain on hold until the
Discontinuation Vote is held at the May 2024
AGM. Notwithstanding this, focus continued
over the period on the collection of portfolio
data by the Investment Manager as part of
the data collection project and improvements
therein. As a result, there has been a signicant
improvement in data coverage at the portfolio
level. Further information is given on pages
46and 47.
The Investment Manager has over a decade of
experience of investing in assets that have a core
environmental and social benet and has been a
signatory to the PRIs since 2019. The Investment
Manager is committed to the adoption and
implementation of the PRIs, recognising that
doing so better aligns its investment activities
with the broader interests of society and
benets the environment. Further information
on the PRIs can be found on the PRI website:
www. unpri.org. Refer to page 42 for more
information on the Investment Managers PRI
score.
ESG investment processes at the Investment
Manager are overseen by the Responsible
Investment committee whose role it is
to monitor and implement ESG initiatives
across the organisation, including reporting,
regulatory compliance, staff training and
makingrecommendations to the board of the
Investment Manager.
The Responsible Investment committee is also
responsible for the Investment Manager’s
Responsible Investment policy, which outlines its
commitments as a business and the continued
integration of ESG considerations in accordance
with the PRI. The Responsible Investment policy
was rst published in 2020 with the most recent
version available on the Investment Manager’s
website.
The Responsible Investment committee
comprises senior personnel from across the
Investment Manager’s business, including a
representative from the Company’s portfolio
management team. This ensures the Board is
informed of any relevant developments at the
Investment Manager and that best practice
can be shared across the different managed
investment funds. In 2022, the Investment
Manager committed additional resources by
recruiting a senior member of staff to lead on
ESG and legal matters.
ESG framework|1. Decision making
ESG considerations will be part of thedecision-making process.
Strategic report
41
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
PRI reporting
As part of its responsibilities as a signatory to
the PRIs, the Investment Manager is required
to report publicly on its responsible investment
activities each year. In turn, it receives a PRI
assessment report. The assessment uses
the reported information of signatories and
outlines how signatories responsible investment
practices compare year-on-year, across asset
classes, and with peers at a local and global level.
This year, the Investment Manager improved its
PRI assessment score, scoring an average of
76 points out of 100 and four out of ve stars
for each category, improving its overall score
by one star. This was a signicant improvement
on 2021’s
1
score of an average of 52 points.
The improvement followed the introduction
of a voting and engagement policy and voting
reporting, and the introduction of a formal
diversity policy and DEI training for all employees,
along with a number of other ESG initiatives.
The Investment Manager scored higher than
average in each category when compared with
the median. The chart below provides further
information on the Investment Manager’s results.
Sustainability continued
Module score
Star score
AUM coverage
>=10 and <=50%
>50%
Module scorePRI median
Policy governance
and strategy
Direct – Listed equity
– Active fundamental
Direct – Fixed income
– Corporate
Condence
building measures
(0<=25%) (>25<=40%) (>40<=65%) (>65<=90%) (>90%)
80
73
70
80
PRI scorecard - Investment Manager
1. The PRI assessment process for 2022 was suspended by the PRI.
ESG framework|1. Decision making continued
42
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Responsible Investment policy
The Responsible Investment policy is integrated into investment management processes through pre-investment, active ownership and governance
processes, as detailed below.
ESG framework|2. Ownership
The Company will include ESG issues in its policies and procedures.
Pre-investment Active ownership
Deal screening
Investment management processes
positively screen for investments
that promote sustainability,
conform with the Investment
Manager’s values and benet
society, including, but not limited
to, the areas of climate change
mitigation and adaptation, energy
transition, critical infrastructure,
affordable living, social housing,
education and healthcare.
The screening excludes
investments which focus on
non-medical animal testing,
armaments, alcohol production,
pornography, tobacco, coal
production and power, and nuclear
fuel production.
Investments with ongoing or
persistent involvement in human
rights abuses are also excluded.
Monitoring and engagement
Following execution and
investment, key relevant ESG
indicators are monitored by the
Investment Manager’s portfolio
management team. It seeks
to engage with equity owners
and/or operators of projects
to understand the ESG factors
relevant to those projects or
properties and, where relevant,
use inuence as a lender of
capitalor investor to manage
exposure to ESG risks.
The Investment Manager provides
regular updates to the Board on
progress towards the Company’s
ESG framework.
ESG due diligence processes
Prior to the approval of a
new investment, the relevant
investment team assess how
the investment fares against
key relevant ESG criteria
using a checklist which
includes an assessment of ESG
characteristics and asset level
ESG data. The checklist is included
in every investment proposal
submitted to the Investment
Manager’s investment committee.
The assessment typically covers
ESG-related risks and opportunities
and, to the extent applicable,
relevant policies and procedures,
alignment with industry or
investment-specic standards
and ratings, and compliance with
relevant ESG-related regulation and
legislation.
Reporting
The Investment Manager reports
on its progress on an annual
basis, through its Responsible
Investment report published
each year. TheResponsible
Investment report sits alongside
a PRI assessment report, which
summarises its Responsible
Investment activities. Further
information is included on page 42.
The Investment Manager applies
the recommendations of the
TCFD in its own reporting and
encourages the application of the
TCFD framework in its funds in line
with reporting requirements.
Governance and responsibilities
The Investment Manager operates a Responsible Investment committee
which comprises senior personnel from across the business, including
a representative from the Company’s portfolio management team.
Thisensures the Board is kept informed of any relevant developments at
the Investment Manager and that best practice can be shared across the
different managed investment funds.
The committee is responsible for all aspects of the Investment
Manager’s Responsible Investment policy, including oversight of
ESGinitiatives, reporting, regulatory compliance, staff training and
makingrecommendations to the board of the Investment Manager.
The Investment Manager has a clearly dened governance structure with
detailed processes that cover business operations, including investment
management and portfolio monitoring and reporting. It obtains assurance
over the design and operation of its nance and IT controls annually through
the completion of an ISAE 3402 audit by external auditor, Deloitte LLP.
In addition to the board of the Investment Manager, the Investment
Manager employs a team of professionals with in-depth experience in
theinvestment industry and asset classes.
The Investment Manager’s approach to stewardship and engagement is
based on the Principles of the UK Stewardship Code 2020 and is in line
with its philosophy on responsible investing.
Strategic report
43
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Gravis employee
volunteering at Little
Village
Sustainability continued
ESG framework|2. Ownership continued
Investment Manager
The Investment Manager encourages the use of public
transport and minimisation of ight travel in its business
travel policy and operates an electric vehicle scheme and a
bike to work scheme. The Investment Manager’s premises
in London hold a BREEAM ‘Excellent’ rating with the ofces
powered by renewable energy.
All staff are provided with stainless steel, BPA-free, reusable
water bottles and insulated cups to reduce the impact of
single use plastic and the Investment Manager operates
an ofce consumables and paper recycling scheme.
Furthermore, the Investment Manager has achieved its aim
ofrunning its operations on a carbon-neutral basis by fully
offsetting its emissions through contributions to a carbon
offsetting portfolio run by provider Climate Impact Partners,
whose aim is to reduce one billion tonnes of CO
2
by2030.
Whilst the Board and the Investment Manager do not
consider offsetting to be a perfect solution to the impact its
activities have on the environment, both parties believe it is a
useful starting point. The ultimate aim is to reduce emissions
with the intention of continuing to investigate and follow
best practice in this area.
In 2022, the Investment Manager was awarded an ‘Investors
in People’ accreditation, which assesses how organisations
perform in areas such as employee engagement,
communication, organisational culture and work practices.
The Investment Manager has committed to working with
Investors in People with the aim of further improving its
accreditation level over a three year period. Investors in
People is the UK’s leading people management standard,
designed to help organisations improve performance
through their employees. Part of this is giving employees the
opportunity to reach their potential through the provision
of regular training to staff, including funding for specic
industry qualications by the Investment Manager.
The Investment Manager also operates a range of measures
to support the physical and mental health of its employees,
including a private healthcare package, weekly tness
classes and guidance on healthy working practices. This year,
two training sessions were held for employees on improving
mental health at work. Hybrid working arrangements are
offered to all employees.
This year, the Investment Manager introduced a formal
diversity policy, as well as diversity and equality training for all
employees. It also carried out an anonymous questionnaire
to help understand the makeup of its workforce. This means
the data can be monitored over time as the Investment
Manager strives for improvement in diversity, equality and
inclusion (“DEI”), while also considering specic areas
of focus. A broad range of data was collected, including
ethnicity, disability, neurodivergence, sexual orientation,
gender identity, social background and caring responsibilities
of employees. This has helped the Investment Manager
establish a baseline and will facilitate improved diversity
reporting going forward.
The Investment Manager participated in the 10,000 Black
Interns programme this year, which offers paid internship
opportunities across more than 25 sectors, along with
training and development opportunities. It offered two
paid internships as part of the programme, with both
interns working across the Company. It also facilitated a
paid internship for a student as part of the Young Women
into Finance programme. Young Women into Finance is a
not for prot organisation dedicated to the eradication
of gender bias for new graduates entering the nance
industry, with a goal of achieving a 50/50 gender split in
graduate recruitment gures by 2030. The intern worked
across various teams at the Investment Manager. It intends
to continue its involvement with the 10,000 Black Interns
programme and the Young Women into Finance programme
inthe forthcoming year.
44
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Gravis employees volunteering at Little VillageInterns conducting a site visit at Birmingham Biopower Ltd
£46,000
Donated to charities
185
Hours spent volunteering
38
Employees volunteered
The Investment Manager operates a volunteering initiative
which encourages employees to volunteer for charitable
or not for-prot purposes by giving an additional two days’
paid leave plus two days’ unpaid leave per year. It continues
to operate its charity of the year scheme, and engage with
fundraising, events and through volunteering. This year, for
the second consecutive year, the charity chosen was Little
Village, a charity that supports local low-income families.
Atotal of 38 employees participated, with more than 185
hours spent volunteering over the year
1
.
This provided employees with the opportunity to work as
a team, engage with the local community and understand
more about the hardships low-income families with young
children face. Total amounts raised for Little Village to date
are £48,000. The Investment Manager also made donations
to the other charities shortlisted as part of its charity of the
yearinitiative.
In April 2024, The Investment Manager was awarded
a B Corporation (“B Corp”) certication. The B Corp
certication measures a company’s social and environmental
performance. Refer to page 53 for more information.
1. Twelve month period to 31 March 2024.
Strategic report
45
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
Corporate engagement
The Board maintains a positive dialogue with its
key service providers and, through its annual
review of service providers, it monitors any
reported social and environmental issues. All
key service providers, including the Investment
Manager and the Administrator, regularly report
on their efforts and progress in areas such as
diversity, the environment and social impact.
Service provider initiatives include policies such
as promoting paid rather than unpaid internships,
charitable donations, volunteering days and
encouraging low carbon ofce environments
aswell as business travel.
Portfolio governance
Governance at the Investment Manager is clearly
managed and articulated and is considered
essential to achieving the Company’s investment
strategy, managing risks and creating a positive
environmental and social impact. TheInvestment
Manager engages with the underlying assets’
boards to seek to improve and enhance
governance where required at theportfolio level.
The Investment Manager has a clearly dened
governance structure with detailed processes
that cover business operations, including
investment management and portfolio monitoring
and reporting.
The Investment Manager’s designated portfolio
monitoring team engages with borrowers on an
ongoing basis, with the origination and portfolio
monitoring teams undertaking site visits to
assets in the UK and Ireland. Regular monitoring
of information and nancial covenant obligations
is also carried out to ensure compliance and the
early identication ofpotential issues.
Site visits are an important aspect of the
portfolio management role and have both
technical and commercial benets. They allow the
Investment Manager to assess the performance
of both asset and operator and investigate any
important project issues. Furthermore, site visits
give the Investment Manager the opportunity
to understand the operations and relationships
important to each asset and its long-term
success. This year, site visits covering 36% of
the portfolio by value at 31 December 2023 were
conducted.
The Investment Manager values its relationships
with borrowers and recognises the importance
of ensuring time is spent building and maintaining
these relationships. By engaging with borrowers
and understanding their needs, the Group is able
to provide bespoke lending solutions which reect
the contractual fundamentals and inherent risks
of the underlying assets and cash ows.
Data collection project
This year, the Investment Manager continued to
progress its data collection project to collect
material ESG metrics from the underlying
portfolio for the twelve month period to
30September 2023. The Investment Manager
chose to amend the reporting period from
31December to 30 September in the current
year to facilitate the earlier completion of the
data collection project. The period reported in
theprior year was the twelve month period to
31December 2022.
The process involved the portfolio management
team liaising with each borrower to obtain
relevant ESG material data points on underlying
portfolio assets as detailed in the table on page
47. When considering materiality, the Investment
Manager was advised by an external consultant,
MJ Hudson, using framework guidance provided
by GRESB, the EDCI and alignment with the UN
SDGs. The scope of the data collection will be
kept under review in a continuation scenario.
MJ Hudson is a business with over 15 years of
experience in the sustainability sector, assisting
companies with their ESG implementation and
transition plans. In 2022, they advised on the
ESG data collection process and conducted an
independent review of the data for signicant
inconsistencies. Furthermore, they assisted the
Investment Manager in the creation of an ESG
dashboard to report on performance against
relevant themes and KPIs across the portfolio
which was utilised in the 2023 data collection
project.
In a continuation scenario, the Investment
Manager will continue to liaise with asset
operators to improve and rene the availability of
future ESG data which will be collected and used
as part of its regular reporting to shareholders in
the Company’s annual report. It may also consider
obtaining independent assurance over the data
in future years.
Several challenges continue to be faced in
respect of the availability of the data requested,
insofar as the Company is a debt provider
and does not own or control the assets in the
portfolio. In a continuation scenario, for any
future investments, the Investment Manager
intends to include additional data clauses in
loandocumentation to facilitate the collection
ofESG data more easily.
ESG framework|3. Partnership
The Company will consider the ESG approach of those
it chooses to engage with and invest in.
46
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
This was the second year the data collection
project was carried out and the Investment
Manager has been able to provide a year-on-year
comparison of ESG data. In order to present
a more detailed picture of the data collected,
carbon emissions have been reported separately
from the other environmental metrics and the
comparative period restated.
In 2022, the twelve month period for the data
collection ended in December. However, this
year the data collection period was amended to
September, giving borrowers and asset owners
more time to respond to the questionnaire
and giving the Investment Manager more time
to analyse and verify the data. From this, the
Investment Manager was able to increase
the portfolio coverage of all areas, with the
exception of the social area. The weighted
average coverage increased to 56% from 34% in
the prior year.
This has provided an improved and more reliable
outcome for the project. Additionally, as this was
the second year of the project, borrowers were
more familiar with the process of completing the
ESG data questionnaire.
The Company uses the data collected from the
portfolio to monitor the impact of ESG factors
over time. Through the data collection process,
the Investment Manager has been able to
increase engagement with borrowers on ESG
matters. The process also allows the Board and
the Investment Manager to monitor ESG-related
risks and implement appropriate mitigation plans
where necessary.
Data collection
ESG area Data points
Portfolio
coverage
1
30 September
2023
Portfolio
coverage
1
31 December
2022
Increase/
(decrease)
Environmental
EPC ratings, green certications, environmental targets and board
oversight, target formation processes, energy conservation strategies,
and promotion of green initiatives.
79% 30% 49%
Social
Total FTEs, attrition rates, staff training/career development
programmes, satisfaction surveys, employee health and wellbeing
programmes, absenteeism rate, employee fatalities, H&S lost time
incidents, hours worked and s106/CIL contributions.
29% 29% —
Governance
Gender diversity of board and employees, ISO alignments/certications,
memberships/signatories, and policies for: bribery and corruption,
diversity and discrimination, whistleblowing, supplier code of conduct,
ESG, modern slavery and data protection.
69% 42% 27%
Carbon footprint
Electricity and gas usage and energy use from renewable energy, water
consumption, and waste generated and disposed.
25% 15% 10%
Impact
People housed, nursery places, bursary places, residents in care homes,
renewable energy exported, biogas exported, new homes built, homes
renovated and client satisfaction.
35% 34% 1%
Total
56% 34% 22%
1. Percentage of data responses received per ESG area, weighted by portfolio value.
Strategic report
47
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
Societal benets
The Group’s business model aims to invest
in assets which are integral to society. The
Group provides benets to society through the
provision of funding for assets such as housing
for vulnerable adults, care for the elderly and
urban regeneration. The Group also provides
nance for property purchases or developments
which mainstream lenders cannot serve, for
reasons other than credit quality.
At the year end, FTEs at a portfolio level
comprised c.1,300, of which c.1,000 are in the
social infrastructure sector and c.200 in the
property sector, with the remainder comprising
asset nance, energy and infrastructure
projects.
In a continuation scenario, the Group intends to
continue supporting borrowers that positively
impact society, as they enhance the security of
the portfolio and benet the communities the
assets operate in.
ESG incentive schemes
Recognising the Company’s role as a responsible
debt provider, the Board approved a policy in
2021 to introduce ESG target incentives for
selected loans. Through this mechanism, agency
fees (typically between £10,000 to £20,000 per
annum for each loan) can be waived if agreed
ESG targets or schemes are implemented by the
borrower. The incentive mechanism is included in
all term sheets issued by the Investment Manager
on behalf of the Group.
To date, the Company has funded three ESG
initiatives:
— a bursary scheme for full-time nursery places
for underprivileged children across the
nursery investments (2021). Refer to page 52
for further information;
— reduced-rent desk or studio spaces for
entrepreneurs in the community facilities in
which it invests (2022); and
— free co-living beds to support refugees
eeing from the conict in Ukraine at co-living
properties (2022).
The Company’s ESG policy and framework, which
can be found on the Company’s website, was
developed by the Board and the Investment
Manager in 2021. The policy is based on the PRIs
to ensure alignment across the business and
with stakeholders. This year, the Company’s ESG
policy was reviewed and updated by the Board.
The policy is reviewed at least annually following
the publication of the Company’s annual report.
ESG risks
The Board considers ESG risks, including those
relating to climate change, to be a transverse
risk and are managed within the existing risk
categories identied in the Company’s risk
register, with responsibilities overseen by
therelevant Board committee.
The Investment Manager has carried out a
climate risk assessment for each underlying
portfolio asset to assess the actual and
potential impacts of climate-related risks and
opportunities across the portfolio. Further
information is given on page 56. Based on the
climate risk analysis undertaken, the Investment
Manager does not currently propose to make
any changes to nancial forecasts due to
climaterisk.
ESG framework|4. Acceptance
ESG framework|5. Enhancement
The Company will promote acceptance and
implementation of ESG considerations.
The Board will ensure the Company’s ESG framework is maintained.
48
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
The Board is committed to full compliance
with applicable reporting standards in line with
regulatory requirements and, with the help of the
Investment Manager, continues to increase the
Company’s ESG and climate change reporting.
Further information on the data collection
process and Company metrics and targets can be
found on pages 46 to 47 and 57 respectively.
In the year, the Investment Manager developed
an ESG dashboard which provides regular and
consistent reporting to the Board on progress
with the Company’s ESG objectives, which are
outlined in the ESG policy. The reporting also
includes ESG metrics in respect of fee incentive
mechanisms, new transactions, due diligence
issues raised on new transactions highlighted as
a result of the Responsible Investment checklist,
and ongoing monitoring.
The Investment Manager updated its investment
checklist this year. The checklist is used for
new investment proposals submitted to the
Investment Manager’s investment committee.
The revised checklist captures ESG data from
potential borrowers in line with the annual data
collection process; further information on the
process is included on page 43. The checklist
is used to ensure the due diligence process
captures the relevant ESG data required for
ongoing monitoring and compliance.
The Investment Manager publicly reports its
responsible investment activities
1
in its annual
Responsible Investment report which can be
found on the Investment Manager’s website.
TheInvestment Manager’s Responsible
Investment committee has continued its work
to achieve compliance with the core elements
of TCFD during the year. The Company is exempt
from reporting against TCFD requirements,
however the Investment Manager and Board
believe that the Company must be transparent
about the nancial implications of climate
change on their business and clearly set out
the actions they are taking to manage climate
change risks and opportunities. The Investment
Manager encourages the application of the TCFD
framework across its funds.
SDR
While the United Kingdom’s Sustainable
Disclosure Requirements (SDR) legislation
labelling requirements do not come into effect
until after the Discontinuation Vote, and as
the use of the SDR labels is not mandatory, the
Board has not yet decided whether to apply an
SDR label to the Company. Based on preliminary
portfolio analysis, it is anticipated that a
‘Sustainability Mixed Goals’ label may be able to
be applied to the Company, should the Board
decide to use an SDR label.
Consumer Duty
During the year, the Investment Manager
produced an Assessment of Value report for the
Company which was prepared in accordance with
the requirements of the FCA Consumer Duty.
Although the Company is not required to produce
an Assessment of Value report, the Investment
Manager believes that as a company listed on the
LSE it is good practice to do so.
ISSB
The ISSB has developed an initiative of globally
consistent sustainability disclosure standards,
which provide a framework for companies to
disclose ESG factors, standardise reporting and
ensure investors make informed decisions about
the environmental attributes of a company.
The new ISSB standards encompass IFRS S1 and
IFRS S2. IFRS S1 provides a set of disclosure
requirements which will enable companies to
communicate the sustainability-related risks and
opportunities they face over the short, medium
and long term. IFRS S2 requires an entity to
disclose information about climate-related risks
and opportunities to users of general-purpose
nancial reports who are making decisions about
the provision of resources to the entity.
While the global standards became effective on
1January 2024, the FCA is currently in a period of
consultation until June 2024 regarding proposals
to implement disclosure rules referencing
UK-endorsed IFRS S1 and IFRS S2 for listed
companies. As such, the FCA is aiming to nalise
its policy position by the end of 2024, and is
aiming to bring the new requirements into force
for accounting periods beginning on or after
1January 2025, with the rst reporting beginning
in 2026.
The Company intends to comply with the
necessary requirements in a continuation
scenario.
ESG framework|6. Reporting
The Company will report on progress against its ESG framework
and other external applicable frameworks.
1. This is subject to further analysis and review.
Strategic report
49
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
UN SDGs
By investing in assets that are integral to society, including those which contribute to a greener economy, the Group’s activities align with certain
UNSDGs.These goals were created in 2015 by the United Nations to create a better and more sustainable world by 2030. Examples include good health
andwellbeing, quality education, and sustainable cities and communities.
Through its investments in social infrastructure, the Group has a positive impact on the provision of high-quality and safe buildings for vulnerableadults,
healthcare patients and students. Furthermore, the Group’s approach to governance, labour and health and safety mean the Group positively contributes
to the employees, customers, suppliers and local communities in which the assets operate.
UN SDG alignment of the Group’s portfolio
Impact
2,176
Nursery places
at 30 September
2023
2022
1
: 1,566
£61.8m
Invested in care
home projects
since IPO
2022
1
: £60.6m
50:50
Board gender
diversity at
31December 2023
2022
1
: 50:50
£38.3m
Invested in
nursery projects
since IPO
2022
1
: £31.2m
260
Care home
residents at
30September 2023
2022
1
: 251
44:56
Investment
Manager gender
diversity
3
at
31March 2024
2022
1
: 38:62
UN SDG target 4.2UN SDG target 3.8 UN SDG target 5.5
£883.5m
Total investment since IPO
2022
1
: £850.8m
1,320
FTEs at portfolio level at
30 September 2023
2022
1
: 1,319
£36.4m
Invested in
affordable housing
projects
4
since IPO
2022
1
: £36.0m
196
Supported living
residents at
30September 2023
2022
1
: 203
UN SDG target 9.3UN SDG target 8.3 UN SDG target 11.1
1. Data at 31 December 2022.
2. Period chosen to facilitate inclusion in the annual report.
3. 44% female employees compared to 56% male employees at the Investment Manager.
4. Projects that meet the denition of ‘affordable housing’ under the UK Government’s National Planning Policy Framework.
50
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
SDG
alignment
After identifying affordable housing as an
undersupplied sector in the UK, the Group
entered into an agreement with a property
developer to develop affordable housing in
Southwark, London.
The borrower was founded in 2016, with the
aim of identifying opportunities to unlock
developments using the airspace of existing
buildings in London. Airspace development
is a technique whereby unused space on the
rooftops of existing buildings is converted into
new homes. Central to the business model was
using this space to develop affordable housing.
The borrower has been involved in forming the
National Planning Policy Framework, advocating
for the use of airspace development to facilitate
the provision of new homes.
The borrower entered into a facility agreement
with the Group to secure £5.3 million of senior
nancing, which benets from rst ranking
charge over the property and xed and oating
charge over all of the assets. The balance of
the funding was provided by a grant from the
Greater London Authority (“GLA”) and through
equity of the business with an inter-creditor
agreement in place to subordinate GLA funding
and shareholder loans.
The project created 30 additional housing units in
the airspace between the buildings of an existing
affordable housing development in Southwark,
London. While all works on the project have now
been completed, some delays were experienced
due to material and labour shortages due to
the Covid-19 pandemic, which resulted in the
construction programme being extended by
the contractor from March 2022 to March 2023.
Final works slipped further from the March 2023
completion. A two month extension of the facility
was agreed, with a 2% rate increase to 9% and a
£20,000 extension fee payable by the borrower
to the Group, to allow for practical completion
and sale documentation to be completed.
On completion, the scheme was purchased by
the local authority under an option agreement in
place with the developers.
In December 2023, the borrower repaid their loan
of £6.2 million in line with the contractual terms
of the agreement.
Affordable housing
Strategic report
51
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
Impact continued
SDG
alignment
ESG incentives
Since 2020, the Group has funded ESG incentive
schemes, including a bursary scheme for children
to attend nurseries secured against loans in the
portfolio, giving underprivileged children access
to high-quality early years education. In 2023, the
number of bursary places offered by the nursery
increased from seven to twelve.
The Investment Manager believes that every
child should be given the opportunity to gain
an outstanding education. However, years of
underfunding in the early years industry has
meant access to high-quality education is not
possible for all, especially those living in deprived
areas. This has been exacerbated by the rise in
social inequality due tothe cost of living crisis in
the UK.
The nurseries nanced by the Company aim
for best-in-class status; ve of the nurseries
in the group have been awarded ‘outstanding’
ratings from Ofsted. The operational assets are
fully occupied with signicant waiting lists. By
removing the challenges of accessing affordable,
high-quality early years education for these
families, the Investment Manager hopes the
children will have a positivefuture.
The curriculum at the nurseries is focused on
environmentalism and is designed to create
informed and inspired changemakers, with
one of the four key pillars taught being Global
Responsibility. The nurseries are a participant
in the Eco Schools programme and 19 of their
nurseries have achieved green ag status.
In addition, the nurseries achieved B Corp
status in 2022, and are a zero waste to landll
business, with almost all of their nurseries run
on renewable energy. The nurseries have also
switched nappy providers, with nappies now
made from 100% green energy.
The nurseries have also had a strong social
impact, becoming a Restless Age diverse
employer, which promotes employment
for people aged over 50 in the UK. They
also participated in the Stonewall Diversity
Champions Programme, and gained their Level 1
Disability Condent award.
The loans were repaid in December 2023,
generating net cash proceeds of £35 million
which were used to fully repay the outstanding
balance under the RCF.
52
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
B Corp
The Investment Manager was awarded a B
Corporation (“B Corp”) certication in April2024.
The B Corp certication demonstrates
a company’s commitment to social and
environmental causes and governance. From
supply chain and input materials to charitable
giving and employee benets, the B Corp
accreditation veries that a business is meeting
high standards of social and environmental
performance, transparency and accountability.
An organisation must undergo a detailed review
process to obtain certication as a B Corp.
The B Impact Assessment evaluates a company’s
practices and outputs across ve categories:
governance, workers, community, the
environment and customers
1
.
— Governance: focuses on a company’s mission,
ethics, transparency and engagement
with employees, board members and the
community.
— Workers: concerns efforts to improve the
work environment, including compensation,
benets, training and safety practices.
— Customers: evaluates how a company serves
its customers by providing services focused
on the greater good and how it engages in
ethical marketing and data privacy.
— Environment: assesses a company’s efforts
towards sustainability and reducing its carbon
footprint.
— Community: examines a company’s
contributions to the economic and social
wellbeing of the communities it operates in,
including supplier relations and charitable
giving.
Certied B Corporations are leaders in the
global movement for an inclusive, equitable,
and regenerative economy. The Investment
Manager’s rst B Corp score of 99.4
demonstrates its commitment to social and
environmental standards. As such, achieving
BCorp status is a signicant milestone for the
Investment Manager, which scored particularly
well in the areas of health, wellness and safety,
and employee engagement and satisfaction.
50.9 Median score for ordinary businesses
80 Qualies for B Corp certication
99.4 Overall B impact score
99.4
Overall B Impact Score
1. B Lab Europe.
Strategic report
53
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
TCFD: Governance
Compliance statement
For accounting periods beginning on or
after 1 January 2022, companies with a
UK premium listing are required to report
on a comply or explain basis against the
recommendations of the TCFD. Although the
Company, as an investment company, is not
required to comply, it has provided a summary
description under the four TCFD pillars of
governance, strategy, risk management, and
metrics and targets, giving consideration
to the TCFD ‘Guidance for All Sectors’ and
the supplemental guidance for the nancial
sector. The Company is therefore not in
compliance with the eleven recommendations
of the TCFD at this stage.
Governance
The Company does not have an investment
objective of sustainable investment nor does
it use ESG criteria to evaluate investments
or assess their social impact within its stated
investment appetite. The Directors do, however,
believe in the integration of Responsible
Investment principles across all aspects of
the Company’s operations. This includes the
application of ESG screening to ensure the
long-term success of the Company and the
success of the sectors in which it operates.
The Company delegates investment management
in accordance with the investment mandate
to the Investment Manager; as such, the key
decisions made by the Board in the ordinary
course of business relate to the Company’s
strategy, stakeholder engagement and oversight
of risk management.
These decisions are governed by the matters
reserved for the Board and the terms of
reference of the Board’s committees. Ownership
of ESG, including the oversight of climate-related
risks and opportunities, is the responsibility
of the Board, with the Board’s committees
delegating responsibility for ESG-specic items
through the terms of reference as follows:
— Audit committee: those relating to controls
and processes of material nancial data,
valuations and reporting, internal assurance,
third party review of data and external
reporting and metrics.
— Risk committee: those relating to the impact
of identied and emerging risks, initial
borrower screening, ongoing due diligence
and investment monitoring.
— Management Engagement committee:
those relating to service provider ongoing
compliance with their internal policies and
alignment with the Company’s strategy.
— Remuneration and Nomination committee:
those relating to the composition, director
skills and shareholder proxy company
engagement and reports.
Joanna Dentskevich is the Director responsible
for ESG and further facilitates the development
of the Company’s ESG framework to ensure
the Company’s ESG focus remains current and
is considered by the Board in their decisions,
processes and policies. TheCompany’s
ESG framework is detailed further on page
40 and its ESG policy can be found on the
Company’swebsite.
The Investment Manager has over a decade of
experience in identifying assets with inherent
environmental and social benets. Responsible
Investment is at the core of the Group’s
investment management processes and is led
by the investment team. These investment
processes are overseen by the Responsible
Investment committee, which reports to the
board of the Investment Manager. Further
information is provided on page 41.
When evaluating and approving new investments,
the Investment Manager directly and/or
indirectly addresses climate-related physical
and transition risks and opportunities. The
Investment Manager’s investment committee
reviews ESG impacts as part of the investment
process. An ESG indicator dashboard has been
developed to ensure consistent reporting to the
Board for consideration as part of the quarterly
reporting cycle.
The Investment Manager has continued to
carry out a climate risk assessment for each
of the Group’s underlying assets to assess
climate-related risks and opportunities across
the portfolio. Further information is given
on page 56. The Investment Manager also
undertakes an annual data collection project
to help understand ESG impacts and climate
risk within the portfolio; further information
on the data collection project can be found on
pages 46 and 47. Data collection, verication
and analysis is an ongoing process carried out
by the Investment Manager and ensures that the
Company’s annual ESG reporting is up to date
and relevant.
54
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
TCFD: Strategy
Physical risks
Through the climate risk assessment, the
Investment Manager, based on current climate
conditions, believes that the physical risk the
portfolio is most exposed to arises from extreme
weather events in the short, medium and long
term. Time horizons have been dened as:
— short term: zero to three years;
— medium term: four to eight years; and
— long term: over eight years.
At this stage, the Investment Manager believes
the main extreme weather event in the short
term is ooding which may affect assets in the
property and social infrastructure sectors that
are reliant on physical premises located in areas
that have a higher risk of ooding. The possible
impact on the borrower in these cases might
be increased costs arising from water damage,
remediation, impact on operations and higher
insurance premiums.
In the medium to long term, the Investment
Manager believes that extreme weather
events such as higher temperatures and water
shortages may impact borrowers with loans
associated with care homes and social housing
where further installation of air conditioning
units and the additional costs associated with
operating these assets may impact operators’
protability. Higher temperatures may also
impact the valuation of properties which are
poorly insulated or not designed to withstand
extreme weather events.
The majority of physical assets in the portfolio
are located in the UK, in regions with no specic
threat from earthquakes, storms or other natural
disasters. Projects located in regions known for
earthquake risk, storms or natural disasters such
as those located in the USA, contain specic
design features that have been incorporated to
withstand the impacts.
Transition risks
The Investment Manager believes the main
transition risks the portfolio may be exposed
to in the short, medium and long term will arise
from changes to climate-related government
policy and regulation. The introduction of the
Minimum Energy Efciency Standards (“MEES”)
may impact some properties as it focuses on
insulation and reduction of energy usage. Less
modern properties with designs that currently do
not comply with MEES may require further capital
works to meet improved EPC ratings.
As the property sector within the portfolio mainly
comprises short-dated loans across diversied
geography and sub-sectors, the Investment
Manager has identied areas of mitigation
to the impact of such government policy and
regulatory changes. New loans to projects within
the property sector are more likely to support
modern properties for which the design is more
likely to comply with MEES.
The impact on the portfolio of physical and
transition risks may result in a reduction in
property values of older stock, leading to
increased LTVs and increased credit risk due
to operators’ lower protability, potentially
impacting their ability to meet payments.
However, the results from the rst climate
change impact assessment indicate that
whilst there is some exposure to physical
and transitional risks for certain assets, the
impact and probability of occurrence overall
is considered by the Investment Manager to
be low and the nancial impact in the context
ofthe Group’s diversied portfolio is likely to
beimmaterial.
As this was only the second year the Investment
Manager has undertaken a detailed climate
risk assessment and development work is
continuing, the scope considered the impact
of more extreme weather events but excluded
consideration of a 2ºC or lower scenario.
Strategic report
55
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Sustainability continued
TCFD: Risk management
The way the Company manages risk, and the
principal risks and uncertainties considered,
are described on pages 66 to 72. The Board
considers ESG risks, including those relating to
climate change, to be a transverse risk managed
within the existing risk categories identied in
the Company’s risk register.
The Board and each committee of the Board
regularly review their terms of reference to
ensure that ESG risks, including climate risk,
remain incorporated into the governance
framework of the Company. The key operating
manual of the Company is also regularly reviewed
to ensure the policies and procedures consider
ESG and climate risk wherenecessary.
The Investment Manager directly and/or
indirectly seeks to address climate-related risks
and opportunities when evaluating and approving
new investments. This includes the completion
of a Responsible Investment checklist for each
new investment. However, investment activity
was intentionally limited this year, with capital
resources reallocated to repay the RCF in full and
to other means of providing shareholder value
such as buying back shares. Given the diversity
of sectors the Group invests in, the approach
to assessing and measuring ESG risks (including
climate risks) reects the unique characteristics
of each investment.
Ongoing due diligence is carried out during the
life of each asset to identify any new risks and
changes to existing risks, including changes to
Government and industry legal and regulatory
requirements and assessments, along with the
impact of ooding and any other appropriate
considerations.
Following investment, loan performance is
monitored against the relevant covenants and
information requirements that are contained
within the terms of the loan agreement.
The requirements are tailored to manage
risks specic to each project and typically
include nancial, regulatory, operational and
construction reporting, where relevant. Through
the Responsible Investment checklist process,
the Investment Manager seeks to identify ESG
indicators to include in its reporting to enable
it to monitor borrowers and inform the way
investments are managed.
An ESG indicator dashboard has been
developedto ensure consistent reporting to the
Board for consideration as part of the quarterly
reporting cycle.
Climate risk assessment
To understand the potential impact climate
change will have on the portfolio, the Investment
Manager has conducted a detailed portfolio-wide
climate risk assessment on each of the 42 loans
in the portfolio. The risk assessment considered
nine risk factors associated with physical and
transition risks deemed to be the most material
to the overall portfolio. These were:
— Physical risks (events driven by a shift
in temperatures and weather patterns):
ooding; heat stress; water stress; res and
wildres; and natural disasters.
— Transition risks (risks related to the
transition to a low-carbon economy): policy
or regulatory; technological; market; and
reputational risks.
External and internal data points were used to
assess the portfolio’s exposure to changes to
energy efciency standards and to ooding. EPC
ratings and ood risk data available for UK assets
were obtained using databases provided by the
UK Government.
The loan-by-loan assessment was undertaken
by the Investment Manager’s portfolio
management team to consider the specics of
each investment and to understand the overall
exposure to climate change and any mitigating
factors. The results from the risk assessment will
be used as part of decision-making in relation to
portfolio management. This will help identify risk
mitigation strategies with the borrower and to
better inform the impact, if any, on the underlying
borrower’s cash ows. Furthermore, it will be
used to assess how climate risk may impact
the performance of the loan and ultimately the
nancial forecasts of the Company.
56
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
TCFD: Metrics and targets
The Company reports to stakeholders through its
nancial reporting and through the Investment
Manager by way of quarterly updates. In turn,
the Investment Manager provides regular
reporting to the Board at its quarterly Board and
committee meetings.
The Investment Manager provides regular
updates on progress towards the Company’s
ESG framework which will be developed further,
subject to the outcome of the Discontinuation
Vote, to include how investment activities have
incorporated ESG considerations, including
the impact of climate risk, ESG metrics on fee
incentive mechanisms, new transactions, due
diligence issues raised on new transactions
(identied in the Responsible Investment
checklist) and ongoing monitoring.
Greenhouse gas emissions
As an externally managed investment company,
the Company has no employees, does not own
any property, and does not purchase electricity,
heat, steam or cooling for its own use. It is
therefore exempt from the Streamlined Energy
and Carbon Reporting disclosure requirements
relating to Scope 1 (direct) and Scope 2 (indirect)
GHG emissions. However, to meet UK legislation
targeting net-zero greenhouse gas emissions by
2050, the Company will need to begin reporting
its Scope 3 emissions, which fall under two
categories as dened by the GHG Protocol:
Category 1: Purchased goods and services
The emissions from services provided by the
Investment Manager and the Administrator and
emissions from travel of the Board are deemed
to be the most material in the context of the
Company’s outsourced service model. The Board
has elected not to disclose this information until
further data points from the portfolio can be
obtained and veried.
Category 15: Investments
The exercise to collect detailed data on the
emissions of underlying projects has continued
during 2023 and data coverage represents
56% of portfolio assets by value. The Company
has therefore elected not to disclose this
information this year.
The Investment Manager will continue to liaise
with asset operators to improve and rene
the availability of future ESG data which will be
collected and reported on an annual basis in a
continuation scenario. Further information on
the data collection exercise can be found on
pages 46 and 47.
The Board and the Investment Manager are
committed to improving the Company’s data
capture and disclosure to help drive more
consistent reporting across the industry. It is the
Investment Manager’s intention, in a continuation
scenario, to develop the Company’s approach to
targets in the forthcoming year to enable more
detailed reporting.
Strategic report
57
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Stakeholders
The Board values the importance
of maintaining a high standard of
business conduct and stakeholder
engagement and ensuring a
positiveimpact on the environment
in which the Group operates.
58
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Stakeholders
The Company engages with its stakeholders
in different ways. This section outlines the
key stakeholder groups, the importance of
engagement and how the Company and the
Board interact. Stakeholders have been grouped
into six key categories, with an overview of why
and how the Company engages including, where
relevant, key Board decisions which impact
these groups and the ways in which theBoard
considers their interests during the year.
All Board discussions involve careful
consideration of the longer-term consequences
of any decisions and their implications for
stakeholders. The Board values the importance
of maintaining a high standard of business
conduct and stakeholder engagement and
ensuring a positive impact on the environment
inwhich the Group operates.
Section 172:
Promoting the success of the Company
The interests of the Company’s employees
The Company has no employees but has close working
relationships with the employees of the Investment
Manager and the Administrator to which it outsources
itsmain functions.
Refer to
stakeholder
engagement
section on
pages 58 to 65
and governance
section on pages
74 to 101.
The impact of theCompany’s operations
onthe community and the environment
The Company has an ESG policy and framework, as
detailed further on page 40. The policy is based upon the
PRIs to ensure alignment across its business and with
stakeholders.
Refer to
sustainability
section on pages
38 to 57.
The need to foster the Company’s
businessrelationships with suppliers,
customers and others
The Board has a close working relationship with all
itsadvisers and regularly engages with all parties.
Refer to
stakeholder
engagement
section on pages
58 to 65.
The desirability of the Company
maintaining a reputation for high
standards of business conduct
Under the leadership of the Chairman, the Board operates
with core values of integrity and impartiality with an aim of
maintaining a reputation for high standards in all areas of
the business it conducts.
Refer to Board
culture and
purpose on
page 81 of the
corporate
governance
statement.
The need to act fairly between
shareholdersof theCompany
The Board actively engages with shareholders and
considers their interests when setting the Company’s
future strategy.
Refer to
stakeholder
engagement
section on pages
58 to 65.
As a member of the AIC, the Company reports against the AIC Code on a comply or explain basis.
Whilst the Company is not domiciled in the UK, by reporting against the AIC Code, the Company
voluntarily meets any obligations in relation to the UK Code and specically section 172 of the
Companies Act 2006.
The Board of Directors consider, both individually and together, that they have acted in a way they
consider, in good faith, is most likely to promote the success of the Company for the benet of its
members as a whole (having regard to the stakeholders and matters set out in section 172 of the
Companies Act 2006) in the decisions taken during the year as set out below.
Strategic report
59
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
The stakeholder model below demonstrates how the Company
interacts with all of its stakeholders.
Stakeholders continued
Equity
Total returns
Services
Payment
Interest and
principal
Loans
Interest Debt nance
Society
The Company positively impacts society through its investing activities, providing funding for assets
whichareintegral to society.
Shareholders
All investors in the
Company, be they
institutional, such as
pension funds or wealth
managers, or retail, such
asprivate individuals.
Suppliers
Suppliers across the UK
andJersey who provide
services to the Company.
Lender
Provider of the Company’s
credit facilities.
Government and
regulators
Governmental organisations
providing public services for
society, or nancial services
regulators.
Borrowers
Owners of the Project
Companies to which the
Group advances loans.
Stakeholder model
Taxes/
compliance
Public
services/
laws/
regulation
60
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Shareholders
All investors in the Company,
be they institutional, such
as pension funds or wealth
managers, or retail, such as
private individuals.
How the Company engages
The Company, primarily through its Investment
Manager and Broker, engages in ongoing
communication with its shareholders via market
interactions, webinars and shareholder, analyst and
marketing presentations.
Shareholder engagement is reported to the Board
on a quarterly basis. Feedback obtained through
this engagement is taken into consideration when
setting the future strategy of the Company and Board
decisions which may impact shareholders.
The Board encourages shareholders to attend and
vote at the Company’s general meetings so they may
discuss governance and strategy and understand
shareholders’ issues and concerns. The Board and
the Investment Manager are keen to engage with
shareholders to address any questions or concerns
they may have.
The Investment Manager has engaged with
shareholders throughout the year by holding
meetings, hosting webinars and portfolio updates
for investors, including holding separate webinars to
discuss the Scheme and other general matters.
The Board has engaged extensively with shareholders
during the year to seek feedback on strategic
initiatives and opportunities, as well as the overall
future of the Company. Refer to page 62 for
furtherdetails.
Why engage
Through the provision of capital, shareholders enable the Company to pursue its investment objective.
Inreturn,the Company generates earnings for shareholders and grows the capital value of the portfolio
overthe long term.
Strategic report
61
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Stakeholders continued
Key Board decision:
Strategic initiatives
Decision:
On 13 December 2023, the Board announced
that it would commence a Strategic Review
to consider how it may best deliver value to
shareholders. Prior to this, the Board had
considered:
— A proposed combination of the Company
with GCP Infra. Whilst a number of
shareholders expressed their support for
the proposed combination, a signicant
minority of shareholders informed the
Company they were not supportive.
As a result of the feedback, the Board
notied GCP Infra of its intention to cease
discussions relating to the proposed
combination and also announced that it
will propose an ordinary resolution at the
Company’s AGM to be held in May 2024 that
the Company continue in its present form
1
.
— A non-binding proposal from a US-listed
investment company (the “Possible
Offeror”) to acquire the entire issued share
capital of the Company. The Board, having
considered the proposal and taken advice
from its nancial adviser, Barclays, believed
that the proposal undervalued the Company
and its standalone prospects and would
not be recommendable to shareholders.
The Board therefore unanimously
rejected the proposal, following which
a second conditional and non-binding
proposal was received from the Possible
Offeror. The Board agreed to provide the
Possible Offeror access to conrmatory
due diligence. Prior to accessing such
information, on 11 December 2023 the
Possible Offeror notied the Company that
it would be withdrawing its proposal.
Process:
Following a further announcement on
29January 2024, the Board engaged
extensively with shareholders in seeking
feedback to inform its decision-making
process for the Strategic Review.
As part of this process, the Board specically
sought shareholders’ views in respect of:
i) a Continuation
1
;
ii) an Orderly Realisation; and
iii) a Potential Sale.
Outcomes:
Feedback on the future strategic direction
of the Company was provided to the Board
by shareholders representing a majority
of the total voting rights in the Company.
Whilst differing views were expressed by
shareholders on the future of the Company,
a majority indicated a preference for an
Orderly Realisation or a Potential Sale. Further,
whilst a minority of shareholders indicated
a preference for Continuation, the Board
believes that the likely scale and take-up of
returns of capital that would be necessary
to provide an exit for shareholders would be
substantial and that, as a result, the Company
would no longer be of a viable size to provide
sufcient liquidity and scale.
Alongside shareholder feedback, the Board
also considered the prevailing and persistent
discount to NAV at which the Company’s
shares have traded over the course of the past
18 months, the liquidity of trading in its shares,
and the limited prospects for achieving greater
scale in the foreseeable future and wider
market conditions.
Accordingly, the Board has reached the
conclusion that shareholder value will be best
served by a proposed Orderly Realisation and
return of capital.
Shareholders will be given the opportunity
to vote on a discontinuation of the Company
at the 2024 AGM, which will be presented
as an ordinary resolution requiring a
majority of those voting to vote in favour of
discontinuation in order for the resolution
to pass. The Board intends to recommend
that shareholders vote in favour of the
Discontinuation Vote.
In addition, and subject to the prior approval
of the FCA, the Board intends to convene an
EGM to be held immediately after the 2024
AGM at which it will seek shareholder approval
for certain resolutions to facilitate the
Orderly Realisation. Further information will
be included in the Orderly Realisation Circular
which will be published on 2 May 2024.
The Orderly Realisation will not result in a
liquidation of the Company in the immediate
future and the Board will seek to implement the
Orderly Realisation in a manner that maximises
value for shareholders.
1. The Company as currently constituted and with the same investment objective and policy.
2. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
62
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Key Board decision:
Change in Broker
Decision:
On 16 October 2023, the Company announced
the appointment of Barclays Bank plc (acting
through its investment bank) as the Company’s
sole Broker.
Process:
The change followed a comprehensive review
by the Board, through its Management
Engagement committee, of the Company’s
corporate broking arrangements. The Board
engaged with a selection of service providers
who were requested to submit a proposal.
The Board considered the credentials of each
service provider, their proposals and which
appointment would be in the best interest of
the Company and its stakeholders, taking into
consideration the upcoming Discontinuation
Vote at the 2024 AGM. This was supplemented
by advice from the Investment Manager.
Outcomes:
The Board found that the experience within the
sector as well as the strength of the overall
team demonstrated by Barclays aligns with the
Company and the period up to and following
the Discontinuation Vote.
Therefore, Barclays were appointed as sole
Broker with effect from 16October2023.
Suppliers
Suppliers across the UK and
Jersey who provide services to
the Company.
How the Company engages
The Board has a close working relationship with all
its advisers and regularly engages with all parties.
The Management Engagement committee regularly
monitors the performance and reviews the terms
of each service contract annually. To ensure
suppliers meet the Company’s high level of conduct,
all suppliers are required to conrm on an annual
basis, in the form of a questionnaire, that they
have adequate policies and procedures in place for
ensuring business continuity planning; cyber security
and prevention of corruption and bribery.
The questionnaire covers policies and procedures
in relation to ESG, compliance with the General
Data Protection Regulation and MAR, as well as a
requirement by service providers to rate their own
service and the conduct of other service providers.
This informs decision making at Board level in
regard to the continuing appointment of service
providers. InDecember 2023, the annual Management
Engagement committee meeting was held, with
the committee reviewing the performance, and
considering the continued appointment of the
Company’s service providers. Refer to page 83 for
further information.
In addition, the Board typically attends the ofces
of the Investment Manager at least once a year to
perform an oversight review and consider matters
such as strategy, portfolio performance and
principalrisks.
Why engage
The Company’s suppliers include third party service providers engaged to provide corporate or administration
services, in addition to the investment management services provided by the Investment Manager.
Theseservices are critical to the ongoing operational performance of the Group.
Strategic report
63
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Stakeholders continued
Borrowers
Owners of the Project
Companies to which the Group
advances loans.
Lender
Provider of the Company’s
creditfacilities.
How the Company engages
The Investment Manager’s designated portfolio
monitoring team engages with borrowers on an
ongoing basis. Engagement takes the form of regular
interaction with borrowers. Visits to projects in the
UK were undertaken by the investment and portfolio
management teams in the year, covering 36% of the
portfolio by value.
The Investment Manager reports to the Board on
asset performance on a quarterly basis. The regular
monitoring of information and nancial covenant
obligations is also carried out to ensure compliance
with nancial covenants to ensure the early
identication of potential issues.
The Board engages with the Investment Manager
with regard to ‘conicted investments’, where the
Investment Manager or any shareholders, directors or
employees of the Investment Manager are directly or
indirectly interested in any entity or asset in relation
to the investment.
How the Company engages
The day-to-day management of the credit facility is
delegated to the Investment Manager, who engages
with the lender to ensure they remain fully informed
of all relevant Company business. This high level
of engagement supports the relationship with the
lender.
The Investment Manager reports to the Board on a
quarterly basis regarding current and future nancing
requirements, as well as the quantum and duration of
the RCF. This information forms the basis of decision
making at Board level. The RCF was fully repaid in
December 2023 and is due to expire in August 2024.
Further information on the RCF is given in note 14 to
the nancial statements.
Why engage
By engaging with borrowers and understanding their needs, the Group is able to offer bespoke lending solutions
which reect the contractual fundamentals and inherent risks of the underlying assets and cash ows. Borrower
contact enables direct feedback and informs strategic decision making at Board level.
Why engage
The Company’s lender, RBSI, provides a credit facility used to make investments in accordance with
theinvestment policy, access to which creates an efcient method of investing capital and minimises the
effectof cash drag.
64
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Government
andregulators
Governmental organisations
providing public services for
society, or nancial services
regulators.
How the Company engages
The Board encourages openness and transparency
and promotes proactive compliance with new
regulation. The Company engages with local
government and regulatory bodies at regular intervals
and participates in focus groups and research
projects where relevant.
The Company, through its Investment Manager and
Administrator, les UK AIFM Regime and Jersey
regulatory statistics on a quarterly basis and assists
the JFSC in collecting data to conduct a national
risk assessment of money laundering and terrorist
nancing threats to Jersey.
Government and regulatory policy inform strategic
decision making at Board level with consideration
given to the impact the Company has on the sector
and vice versa.
During the year, the Investment Manager produced an
Assessment of Value report for the Company which
was prepared in accordance with the requirements
of the FCA Consumer Duty. Although the Company is
not required to comply with the requirements of the
Consumer Duty, the Investment Manager believes
that as a company listed on the LSE it is good practice
to do so.
How the Company engages
Indirectly, the Company engages with society
through its social infrastructure investing, providing
funding for housing for vulnerable adults, student
accommodation, care for the elderly, nurseries and
urban regeneration.
The Company reports on the benets to society
through its normal methods of shareholder
engagement. Further information can be found in the
sustainability section on pages 38 to 57.
The Company has published an ESG policy and
framework in line with good governance and social
responsibility. The policy can be found on the
Company’s website.
Why engage
Good governance and compliance with applicable regulations is vital in ensuring the continued success of the
Company and the regimes within which it operates.
Why engage
Through responsible investing, the Company can ensure the long-term success of not only its operations, but
also of the environment in which it operates. As part of the investment process, ESG due diligence is carried out
by the Investment Manager to ensure that sustainability and its impact on society is considered.
Society
The Company positively impacts
society through its investment
activities, which provide funding
for assets which are integral to
society.
Strategic report
65
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management
The Board and the Investment
Manager recognise that risk is
an inherent aspect of the Group’s
operation and are committed
to effective risk management
to protect and maximise
shareholdervalue.
66
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management strategy and risk appetite
The Board has the ultimate responsibility for
risk management and internal controls within
the Company. The Board and the Investment
Manager recognise that risk is an inherent aspect
of the Group’s operation and are committed
to effective risk management to protect and
maximise shareholder value. When setting the
Company’s risk management strategy, the Board
considers the nature of the risks the Company is
willing to take and the appetite it has for those
risks in order to achieve the Company’s strategic
objective.
Risk management process
At least twice a year, the Board, with the
assistance of the Risk committee, undertake a
robust assessment of the principal and emerging
risks facing the Company, including those
that might threaten its business model, future
performance, solvency and liquidity.
This assessment is supported by the Risk
committee and Audit committee’s review of the
effectiveness of the Company’s risk management
process and internal control systems. This covers
strategic, investment, nancial, operational
and nancial crime risks facing the Company,
as well as any emerging risks. Refer to the Risk
committee report on pages 94 and 95 and the
Audit committee report on pages 88 to 93 for
further information.
In relation to the AIC Code, the Board is
condent that the procedures the Company
has in place are sufcient to ensure that the
necessary monitoring of risks and controls was
carried out throughout the year under review.
During the year and post year end, the Board
continued to discuss with the Company’s key
service provider on how their services comply
with the Company’s policies, procedures and
the terms of the service agreements to mitigate
these risks. Subject to shareholders’ approval
of the Discontinuation Vote, such policies and
procedures will also be reviewed to ensure that
they continue to support the monitoring of risks
and controls during the Orderly Realisation. The
implementation of any such recommendations
arising from these reviews to enhance the
control framework will be evaluated by the
relevant Board committees and appropriate
recommendations will be presented to the Board
for its approval during 2024.
Role of the AIFM
The Investment Manager has been appointed
as AIFM to the Company since September 2015.
The AIFM is required to operate an effective and
suitable risk management framework to allow the
identication, monitoring and management of
the risks to which the AIFM and the AIFs under its
management are exposed.
The AIFM’s permanent risk management function
has a primary role alongside the Board in shaping
the risk policy of the Company. In addition,
it is responsible for risk monitoring and risk
measuring to ensure that the level of risk remains
within the Company’s risk prole and tolerance.
During the year, the Risk committee requested
an analysis of the controls in place to ensure
the AIFM was meeting its risk management
obligations under AIFMD. Subject to
shareholders’ approval of the Discontinuation
Vote, the role of the AIFM in the Orderly
Realisation and any necessary changes to
its policies and procedures to support the
identication, monitoring and management of
risks will be reviewed by the Investment Manager
with the Board.
In considering the principal risks and
uncertainties and emerging risks that the
Company faces, the Board has considered the
impact of events post year end relating to the
Board’s recommendation to shareholders to
vote in favour of the Discontinuation Vote, and
any changes that may be made to the investment
objective and policy to facilitate an Orderly
Realisation.
Risk management framework
Board
Audit committee
Risk committee
Management engagement committee
Oversight of serviceproviders
Investment Manager and Administrator
Risk assessment andreporting
Forecasting and nancialinformation
Other third party advisers
Strategy
Risk identication
Risk assessment
Risk appetite
Controls
Documentation
Mitigation
Risk limits
Controls testing
Stress testing/sensitivity
Audit
Monitoring
Contractual
arrangements
Strategic report
67
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management continued
Principal risks and uncertainties
Principal uncertainties
The Board considers the principal uncertainties faced by the Company during the year to be as detailed below. The Board has determined that an additional
uncertainty now exists.
Uncertainty 1: Discontinuation Vote
Post year end, following the Strategic Review, the Board reached the conclusion that shareholder value would be best served by an Orderly Realisation.
In order to effect these changes, which are conditional on the approval by shareholders of the Discontinuation Vote at the 2024 AGM, the Board is proposing to:
(i) change the existing investment objective and policy of the Company, to adopt the revised investment objective and policy, which will provide for an Orderly
Realisation; and (ii) adopt revised articles of association which will provide for a compulsory redemption mechanism to allow the Company to return capital to
shareholders over time on a pro rata basis.
The ultimate decision by shareholders arising from the Discontinuation Vote, the resolutions to change the Company’s investment objective and policy, and
a Potential Sale is outside the control of the Directors and therefore creates a principal uncertainty as to the future of the Company. Further information is
included in the Chairman’s statement on pages 4 to 6.
Uncertainty 2: Geopolitical uncertainty
The Board considers the extensive macro-economic effects from geopolitical uncertainty due to the invasion of Ukraine and the Israel-Hamas war to be a
principal uncertainty for the Company. These events continue to cloud the outlook for the global economy and exacerbate disruptions in supply chains, energy
prices and market volatility, and have created inationary pressure and investor unease. The Company is predominantly invested in the UK and has no investments
in Ukraine, Russia, Belarus or the Middle East. Equally, no borrowers have been subject to any sanctions imposed due to the wars.
Principal risks
The Board considers the principal risks faced by the Company during the year, together with the potential effects, controls and mitigating factors, to be as
detailed below. The Board has determined there now exists two new principal risks.
Category 1: Credit risk
Risk Impact How the risk is managed Change in residual riskover the year
Borrower default, loan
non-performance and
collateralrisks
Borrowers to whom the Group
hasprovided loans default or
become insolvent.
The success of the Group is dependent
upon borrowers fullling their payment
obligations when they fall due. Failure
of the Group to receive payments or
to recover part or all amounts owed
together with potential additional
costs incurred from the renegotiation
and/or restructuring of loans can
result in substantial irrecoverable
costs being incurred. This could have a
material adverse effect on the NAV of
the Company and its ability to meet its
stated target returns and dividend.
The Investment Manager continuously
monitors the performance of the
underlying assets and has in place a
process for watchlist and problem
loans, taking appropriate action
where required. In addition to
quarterly reporting to the Board,
since the cessation of the Scheme on
18September 2023, all amendments
or extensions to existing facilities are
considered on a case-by-case basis
and require prior Board consent.
Increased
Inationary increases have created higher
costs for borrowers, particularly operational
businesses with stafng and energy
expenditure. The Board and Investment Manager
have continued to focus on the watchlist,
problem and other loan assets during the year.
At 31 December 2023, there were eight loans
categorised as either watchlist or problem
loans, together representing 16.2% of the
portfolio by value. Further information can be
found on pages 20 and 21 and the assessment of
credit risk is disclosed in note 17.6.
Repayment risk (other than
borrower default)
Borrowers to whom the Group
has provided loans are unable to
meet contractual repayment other
than occasioned by default or
insolvency.
Due to the nature of the loans
provided, it is not uncommon, in
the normal course of business,
for extensions to be requested by
borrowers which, if not facilitated,
would mean there is no guarantee that
the contractual repayment prole may
bemet.
The Investment Manager continuously
monitors the performance of the
underlying assets and has in place a
process for watchlist and problem
loans, taking appropriate action
where required. In addition to
quarterly reporting to the Board,
since the cessation of the Scheme on
18September 2023, all amendments
or extensions to existing facilities are
considered on a case-by-case basis
and require prior Board consent.
New
As a result of the current high interest rate
environment and the restriction on extensions
and amendments to existing facilities, those
borrowers who, in normal conditions, would
seek an extension or amendment, are now
seeking alternative renancing in a challenging
market that does not support asset sales in a
timely manner. Further information can be found
in note 17.6.
68
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Category 2: Economic risk
Risk Impact How the risk is managed Change in residual riskover the year
Property
Loans made by the Group to
projects involved in property or
the development of property
are indirectly exposed to the
performance of the underlying real
estate market in the relevant area.
If the market value of any property
investments to which the Group
has provided nance is found to be
materially lower than assumed or
projected, this may adversely impact
the Group’s ability to recover the value
of its investments in the event of a
borrower default or sale process.
Property exposure is diversied across
assets located in the UK, Europe,
Australia and the US, with an average
LTV
1
of c.66%. Property valuations
are required during the due diligence
process, as well as throughout the
life of the asset, as oftentimes there
is diversication through multiple
assets at a project level. Refer to
the Investment Manager’s report on
page27 for further information.
Increased
In response to current levels of ination and
the potential of a broader economic recession
reducing condence in the market, a reduction
in property values is being witnessed. During
the year, the independent Valuation Agent has
seen prime yields increase across several areas
of the property sector and low transactional
volumes.
Macro-economic
Due to the nature and duration
of the Company’s investments,
the prolonged current
macro-economic environment
may prevent the Company from
achieving the risk return prole
required by investors and/or its
investment objective.
Continued high ination, increases in
energy prices and increases in interest
rates could have a material adverse
effect on (i) the underlying Project
Companies, e.g. by reducing the value
of underlying assets or stressing
cash ow where revenue does not
keep pace with rising costs, and (ii)
the ability of the Company to meet its
investment objective.
The portfolio is diversied across 20
asset classes and multiple geographies
with partial ination and/or interest
rate protection through a number
of different mechanisms on 52% of
the portfolio by value. In addition,
the weighted average loan life of ve
years allows for capital rotation over a
relatively short period.
Increased
During the year, credit markets and the listed
investment company sector continued to
experience rapid and signicant pressure,
driven in part by increased interest rates as
central banks attempt to curb ination. Whilst
there have been no recent increases to central
bank rates in countries where the Group has
exposure and ination is slowly abating, the
impact of higher-for-longer interest rates
and ination on the Company’s strategy and
borrowers remains.
Valuation risk
Due to the nature of the
investments made by the Group,
observable market data or
comparable prices may not exist
for some of the assumptions used
in their valuation.
Uncertainty about valuation
assumptions and estimates could result
in outcomes that require a material
adjustment to the carrying amount of
the assets in the portfolio in the future.
Discount rates applied to expected
future cash ows are determined
by the independent Valuation Agent
who is engaged to provide at least
semi-annual asset valuations which
are reviewed and challenged by the
Investment Manager and the Board.
In addition, the Investment Manager,
as part of its due diligence process,
uses market-recognised professionals
to provide initial valuations where
possible.
Increased
The impact of the changing macro-economic
environment continues to present challenges
to the judgements, assumptions and estimates
in modelling future cash ows. In addition, the
Orderly Realisation or Potential Sale may result
in asset values not being realised in full. For
further information, refer to pages 89 and 90.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Strategic report
69
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management continued
Principal risks and uncertainties continued
Category 3: Key resource risk
Risk Impact How the risk is managed Change in residual riskover the year
Reliance on key personnel
atthe Investment Manager
The Company is dependent on
key people within the Investment
Manager to meet its investment
objective.
An inability by the Investment Manager
to retain and recruit the required level
of personnel with the appropriate skills
and experience may adversely impact
its ability to service the needs of the
Company.
The Company has entered into a
contractual engagement with the
Investment Manager. The performance
of the Investment Manager is
monitored by the Board along with the
Company’s other key service providers
on an ongoing basis. The Investment
Manager provides regular updates to
the Board on its resourcing plans and
has a competitive remuneration plan
focused on key employees.
Increased
The year saw the loss of one of the Company’s
fund managers and the Investment Manager’s
Chief Financial Ofcer. Whilst the Investment
Manager has now successfully recruited two
senior personnel to replace the departure,
the Company’s lead fund manager is the lead
fund manager of GCP Infra and the CEO of the
Investment Manager. In addition, as a result
of the impact of the outcome of the Strategic
Review, further demand will be placed on the
Investment Manager; for example, negotiation of
extensions or amendments on existing facilities
and the provision of due diligence information
to any prospective purchaser of the Company’s
issued share capital or assets will require
increased resources from the Investment
Manager. Refer to page 32 of the Investment
Manager’s report for further detail.
Reliance on third party
serviceproviders
The Company has no employees
and is reliant on the ability
of its service providers and
their internal controls for its
successful functioning, including,
but not limited to, successful
implementation of the Company’s
investment objective, their ability
to retain and recruit appropriately
qualied and experienced staff,
as well as compliance, cyber
security, data privacy and business
resilience.
Failure by a third party service
provider to carry out its obligations
in accordance with the terms of its
appointment, or to exercise due skill
and care, could have a material effect
on the Group’s performance, conduct,
compliance or misrepresentation
and damage to the reputation of the
Company.
The performance of the Company’s
service providers is closely monitored
by the Management Engagement
committee, which also carries out an
annual review to monitor service levels
and ensure undertakings are met.
Through the Audit committee and the
Risk committee, the Company’s internal
controls are monitored to identify the
root cause of any risks or issues in
order to address and mitigate them.
Reduced
During the year, the Board witnessed stability
of staff at the Administrator and Company
Secretary, although resource constraints have
been noted at the Depositary, the monitoring
of which will be carried out by the Management
Engagement committee.
Category 4: Regulatory risk
Risk Impact How the risk is managed Change in residual riskover the year
Change in laws, regulation
and/or policy
The Company, its operations and
the underlying Project Companies
are subject to laws and regulations
enacted by national and local
governments.
Any change in the laws, regulations
and/or Government policy affecting
the Company or the underlying Project
Companies may have a material adverse
effect on the ability of the Company
to successfully pursue the investment
policy and meet its investment
objective, which may impact the value
of the Company.
The Company has a comprehensive
compliance monitoring programme
relevant to its operations that ensures
compliance with developments and
changes in legislation and regulation
in the Channel Islands and the UK,
including monitoring the impact of
Brexit in jurisdictions in which the
Group invests. The programme also
monitors compliance with listing and
FCA marketing rules.
Stable
Whilst there have been no signicant changes
to, or new laws, regulations or policy at the
Company level, the Board is cognisant of the
impact at borrower level of the recent changes
of law in Ireland restricting rent increases and
EPC compliance at one of the Company’s assets.
70
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Category 5: Execution risk
Risk Impact How the risk is managed Change in residual riskover the year
Reinvestment risk and
availability of suitable
investments
The Company is not able to deploy
capital in a timely manner or does
not have the capital available to
make investments.
Following the cessation of the Scheme on 18 September 2023, the Board announced that no new investment activity was planned
ahead of the Discontinuation Vote at the 2024 AGM, with amendments and extensions of existing facilities considered on a
case-by-case basis. Should the Discontinuation Vote be approved at the AGM, the Board intends to convene an EGM at which it will
seek approval of certain resolutions to facilitate the Orderly Realisation. As a result, the Board considers this risk no longer applicable.
Category 6: Conicts of interest
Risk Impact How the risk is managed Change in residual riskover the year
Investment Manager
arrangements
The Investment Manager may
not be incentivised to achieve
the objective of maximising
shareholder returns in a timely
manner.
The Investment Manager has full
authority and discretion to act
on behalf of the Company and is
entitled to receive fees based on
the prevailing NAV and the cost of
each investment. The Investment
Manager and its afliates may serve
as investment manager to other
structures with similar investment
objectives. Personnel at the Investment
Manager may also have an interest
in an entity or asset that the Group
invests in. Inaddition, personnel at the
Investment Manager and associated
parties of the Investment Manager are
shareholders of the Company.
The Investment Manager and the
Company have policies and procedures
in place to address potential conicts
including prior approval and consent
from the Board and any conicts that
may arise from previous or current
employment.
New
In order to manage potential conicts of
interest arising since the cessation of the
Scheme and, post year end, the Strategic
Review which recommended that shareholders
vote in favour of the Discontinuation Vote, the
Investment Manager was instructed not to
make any new investments, with all extensions
or amendments requiring prior Board consent.
In addition, should the Discontinuation Vote
pass, to align interests, any changes to the
investment policy will trigger a revision to the
investment management agreement.
Strategic report
71
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management continued
Principal risks and uncertainties continued
Emerging risks
Emerging risks include trends which are
characterised by a high degree of uncertainty
in terms of their occurrence, probability and
potential impact. As part of the Company’s risk
management processes, emerging risks are
considered during the formal reviews of the
Company’s risks, described on page 67 and in
the Risk committee report on pages 94 and 95.
As a result of the potential changes required to
the articles and investment objective and policy
to facilitate the Orderly Realisation should the
Discontinuation Vote pass (the “Proposals”),
theBoard believes there now exists new
emerging risks relating to the Proposals which
will be included in the Orderly Realisation Circular
to be published on 2 May 2024.
ESG risks
The Board considers ESG risks, including those
relating to climate change, to be a transverse
risk, managed within the existing risk categories
identied in the Company’s risk register.
The Investment Manager carries out a climate risk
assessment for each underlying portfolio asset
to assess the actual and potential impacts of
climate-related risks and opportunities across the
portfolio. Further information is given on page 56.
Based on the climate risk analysis undertaken, the
Investment Manager does not currently propose
to make any changes to nancial forecasts due to
climate risk.
Going concern
Assessment
The Directors have assessed the nancial
prospects of the Company for the foreseeable
future, which includes consideration of the
liquidity of the Group’s investment portfolio
and the Company’s nancial position in respect
of its level of cash as well as the Investment
Manager’s forecasts of future cash ows,
borrowing requirements and future investment
commitments. The assessment was made for a
period of at least twelve months from the date
the nancial statements were approved, and
concluded with an assessment of the Company’s
ability to continue as a going concern.
The scope of the Directors’ assessment, which
was performed with the Investment Manager,
acknowledges that, conditional on the approval
by shareholders of the Discontinuation Vote
at the AGM on 20 May 2024, the Board is
proposing an EGM of the Company to be held
on the same day at which shareholders will vote
on the proposals to: (i) change the existing
investment objective and policy of the Company,
and to adopt the revised investment objective
and policy, which will provide for an Orderly
Realisation; and (ii) adopt revised articles of
association which will provide for a compulsory
redemption mechanism to allow the Company to
return capital to shareholders over time on a pro
rata basis.
The specic wording of the resolutions referred
to above will be conrmed in the Company’s AGM
and Orderly Realisation Circular, which will be
published on 2 May 2024.
The going concern assessment has considered
the Investment Manager’s detailed analysis of
operational cash ows under two scenarios:
1. the continuation of the Company’s existing
investment objective and policy, with
anticipation of sustaining the Company’s
existing dividend policy, and exed for both
contractual repayments of loans within
the Company’s investment portfolio and
assumptions of early and late redemptions of
contractual payments that take into account
the Investment Manager’s views; and
2. the discontinuation of the Company’s
existing investment objective and policy
and the Orderly Realisation in a manner that
takes account of early and late redemptions
of contractual payments in accordance
with the Investment Manager’s views. This
scenario assumes that the Company will not
be liquidated in the immediate future and
the Board will seek to implement the Orderly
Realisation in a manner that maximises
shareholder value.
After making enquiries of the Investment
Manager regarding the maturity prole of the
investment portfolio and the forecasted cash
ows for the above scenarios, and having
reassessed the principal risks, the Directors
are satised that the Company has adequate
resources to continue in operational existence
for a period of at least twelve months from the
date on which the annual report is approved.
Material uncertainty
The possibility of shareholders approving the
Discontinuation Vote and/or the resolutions to
change the Company’s investment objective
and policy to pursue a strategy for an Orderly
Realisation of the Company’s portfolio does not
change the Directors’ view that the Company
has adequate nancial resources to continue
in operational existence and meet all liabilities
as they fall due for a period of at least twelve
months. The Directors’ note that the ultimate
decision regarding the future state of the
Company is outside the control of the Directors’
and will be known only after the 2024 AGM
and the proposed EGM. The uncertain future
outcome of the 2024 AGM and the proposed
EGM and the impact this has on the Company’s
future state indicates that a material uncertainty
exists that may cast signicant doubt over the
Company’s ability to continue as a going concern.
Going concern conclusion
Notwithstanding this uncertainty, and based
on the above assessment, the Directors have
concluded that the nancial statements should
continue to be prepared on a going concern
basis and the nancial statements have been
prepared accordingly.
72
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Annual report and nancial statements 2023
Viability assessment
The Board regularly reviews risks that might
threaten its strategy. The Board also assesses
the Company’s policies and procedures for
monitoring, managing and mitigating its exposure
to these risks. The Directors have carried out
a robust assessment of each of the Company’s
risks, including principal risks that threaten its
business model, future performance, solvency
or liquidity, uncertainty, as detailed on pages 68
to 71 and, through stress testing, as described
below. The Board has also assessed the
prospects of the Company over a longer period
than the twelve months required by the going
concern provision.
Stress testing
The Investment Manager has prepared cash
ow forecasts which were challenged and
approved by the Directors, including a stressed
cash ow downside scenario. In order to
analyse the effect of the principal risks and
uncertainties on the Company’s net cash ows,
key nancial ratios, viability and dividend cover,
the Investment Manager has stress tested the
Company’s nancial model by exing a number
of key assumptions used to model the impact of
plausible scenarios, including:
— signicant reduction of 38% of interest
income received, based on the Investment
Manager’s analysis of downside probabilities
of default and recovery rate assumptions;
— borrower default probabilities by sector and
recovery rates of 66% for senior loans and
33% for subordinated loans;
— cash requirements arising from maintaining FX
hedges in a downside FX scenario, calculated
at a 95% condence level;
— increases in the Company’s operating
expenses of 25%;
— a combined scenario with a combination of the
factors described above; and
— impact on the portfolio of downside stress
tests on a sector-by-sector basis.
The Investment Manager also ran further analysis
of operational cash ows under the following:
— a Continuation; and
— an Orderly Realisation.
The Investment Manager believes that the above
scenarios represent a robust sensitivity analysis.
The Company’s principal activity is investing in
loans to third parties supported by the value of
physical assets and/or contracted cash ows.
The Company is reliant on the performance of
interest and principal repayment obligations
to meet its overheads, service its borrowings
and paydiscretionary dividends. The Orderly
Realisation will not result in the liquidation of the
Company in the immediate future and the Board
will seek to implement the Orderly Realisation in a
manner that maximises value for shareholders.
Time period
The Board has determined that a ve year period
is an appropriate period over which to provide its
viability statement. The weighted average term of
the loans in the investment portfolio is ve years
and in the view of the Board and the Investment
Manager, nancial forecasts that support the
analysis are subject to the outcome of the
Discontinuation Vote which makes the impact
beyond a ve year term difcult to assess.
In addition, the extent to which macro-economic,
political, social, technological and regulatory
changes beyond a ve year term may have an
adverse impact on the Company is difcult
to forecast. The viability assessment involved
an evaluation of the potential impact of the
occurrence of these risks on the Company
through the use of stress testing as detailed
above.
Conclusion
Based on the viability assessment and stress
testing performed on the Company’s prospects,
the Directors conrm they expect the Company
will be able to continue in operation and meet its
liabilities as they fall due over the ve year period
from their assessment to 31 December 2028.
Approval of strategic report
The strategic report has been approved by the
Board and is signed on its behalf by the Chairman.
Alex Ohlsson
Chairman
24 April 2024
Strategic report
73
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
What’s in
this section
Governance
Board of Directors
Pages 76 and 77
The Investment Manager
Pages 78 and 79
Board leadership and purpose
Pages 80 and 81
Division of responsibilities
Pages 82 to 84
Composition, succession andevaluation
Pages 85 to 87
Audit, risk and internal control
See the Audit committee report on pages 88 to 93,
the Risk committee report on pages 94 and 95,
risk management disclosures on pages 66 to 73 and the
nancial statements on pages 102 to 138
Remuneration
See the Directors’ remuneration report and policy on pages 96 to 99
Directors’ report
Pages 100 and 101
74
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
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GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Board of Directors
Alex Ohlsson
Chairman
Alex Ohlsson, a Jersey resident, is the managing partner of the law rm
Carey Olsen, and is recognised as an expert in corporate and nance
law in Jersey with a particular focus on international real estate nance
and structures. Mr Ohlsson joined Carey Olsen in 1991, became a Jersey
solicitor in 1994 and an Advocate of the Royal Court of Jersey and a
partner of CareyOlsen in 1995. He was educated at Queens’ College,
Cambridge, where he obtained an MA (Hons) in Law. Mr Ohlsson served as
the independent chairman of the States of Jersey’s audit committee from
2009 until 2018. Heis an advisory board member of Jersey Finance, Jersey’s
nancial services promotional body. He acts as a non-executive director of
a number of companies. He is also chairman of the LSE Main Market listed
company Foresight Solar Fund Limited.
Skills and experience:
Substantial board level and legal experience in the corporate and
nancesectors in Jersey.
Date of appointment:
14 September 2015
Joanna Dentskevich
Senior Independent Director and chair of the Risk committee
Joanna Dentskevich, a Jersey resident, has over 30 years of risk,
nanceand investment banking experience gained in leading global banks
worldwide, alternative investments and the offshore funds industry.
Previously, she was a director at Morgan Stanley heading up its Global
Customer Valuation Group, a director of risk at Deutsche Bank and chief
risk ofcer of a London-based hedge fund. Mrs Dentskevich has a BSc
(Hons) in Maths and Accounting. Mrs Dentskevich is also chair of the
boardof the LSE listed company EJF Investments Limited.
Skills and experience:
Substantial relevant risk, nance and board level experience in
theinvestment sector.
Date of appointment:
7 September 2015
The Directors are responsible for the effective stewardship of the Company’s
activities in order to ensure its long-term success in the interest of stakeholders.
76
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Colin Huelin FCA
Chair of the Audit committee
Colin Huelin, a Jersey resident, graduated in mechanical engineering with
a rst class honours BSc degree and Diploma at Southampton University
in June 1982. He completed his graduate management and monitored
professional development scheme with Shell UK and the Institute of
Mechanical Engineers in 1986. Mr Huelin qualied as a chartered accountant
with Ernst & Young in 1989 and was appointed nance director for
Computer Patent Annuities (“CPA”) in February 1990. He was appointed
CEO for CPA in 1995. In November 1998, he joined Abbey National Offshore
as head of nancial planning, was promoted to nance director in 2003
and then managing director of Santander Private Banking in Jersey in
November2007, a position he held until 31 May 2015.
Skills and experience:
Substantial board level and nancial experience in the banking and
privatesectors in Jersey.
Date of appointment:
7 September 2015
Marykay Fuller
Chair of the Management Engagement committee and the Remuneration
and Nomination committee
Marykay Fuller, a UK resident, is a banking and nance professional with
30years’ experience in debt and equity markets, working with a broad range
of businesses across a variety of jurisdictions including the UK, US, Europe,
South America and Asia. Most recently, she was a senior deal advisory
partner at KPMG LLP where she also represented the rm on the board of
the trade group, British American Business. Ms Fuller is currently the chair
of Intu Milton Keynes Limited and the senior independent director of the
UKCivil Aviation Authority, where she is a member of the audit committee
and sits on the CAA International management board. She is the chair
of the Air Travel Trust, is a non-executive director at TDBico, the parent
company of Tilbury Douglas, and serves on the Alumni Advisory Board of
HeinzCollege, Carnegie Mellon University in the US.
Skills and experience:
Substantial business and debt experience across a variety of jurisdictions.
Date of appointment:
6 November 2019
Governance
77
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
The Investment Manager
The Board of Directors has appointed the Investment Manager to
provide day-to-day investment management services to the Group.
Philip Kent
Chief Executive Ofcer
Philip Kent is a director of the Investment
Manager and acts as co-fund manager for the
Company.
Background:
Mr Kent joined Gravis from Foresight Group,
where he was responsible for investments in the
waste and renewables sectors, including large
waste wood combustion projects and a pipeline
of anaerobic digestion projects across the UK.
He has been involved in the energy sector for
over ten years, working initially as a consultant
within PA Consulting’s energy practice, focusing
on energy markets and energy asset valuations.
In 2008, hemoved to Gazprom Marketing and
Trading, working in risk management across a
number of commodities before moving into the
clean energy team.
Skills and experience:
Extensive experience in the infrastructure
sector, including energy markets, asset
valuations and renewables transactions.
Anthony Curl
Chief Investment Ofcer
Anthony Curl is Chief Investment Ofcer at the
Investment Manager.
Background:
Mr Curl joined Gravis from Alpha Real Capital,
where he was co-head of long income, managing
several investment teams as well as serving as
a member of the investment committee. Having
started his career in banking, Mr Curl has worked
at asset managers such as BlackRock. He has
also worked in the insurance sector as portfolio
manager of Friends Life’s annuities portfolio.
Skills and experience:
Signicant experience across a range of public
and private asset classes, including real assets
andcredit.
Albane Poulin
Head of Private Credit
Albane Poulin is Head of Private Credit at the
Investment Manager.
Background:
Ms Poulin joined Gravis from abrdn, where she
was head of European private placements,
responsible for the origination and underwriting
of new transactions, as well as monitoring
existing private placement investments. She
was also the lead fund manager on a number of
multi-sector private credit funds investing in a
range of private credit asset classes, including
private placement, infrastructure loans and
commercial real estate debt. She has also worked
as a credit analyst at Insight Asset Management
covering utilities and transportation.
Skills and experience:
Substantial experience in credit markets, with
a focus on private credit and asset backed
securities.
Investment team
78
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Luther Ward-Faint
Associate Director
Finn Donahoe
Portfolio manager
Tristan Jackson
Portfolio Manager
Kate Arnold
Portfolio Manager
Justyna Kolarovic
Portfolio Administrator
Iryna Hanbury
Portfolio Administrator
Chloe Marlow
Director of Fund Finance
andOperations
Sarah Bowe
Head of Compliance and Risk
Alethea Nugent
Senior Compliance Adviser
William Parry-Jones
Fund Financial Controller
Martie Chawla
Fund Financial Controller
Mary Tiernan
Investor Reporting Associate
Portfolio administration
Financial and corporate advisory
Governance
79
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Alex Ohlsson
Chairman
Introduction from the Chairman
In this corporate governance statement, the
Company reports on its compliance with the
AICCode, sets out how the Board and its
committees have operated during the year and
describes how the Board exercises effective
stewardship over the Company’s activities for
thebenet of its members as a whole.
The Board recognises the importance of a strong
corporate governance culture and has established
a framework for corporate governance which it
considers to be appropriate for the Company’s
business. All Directors contribute to Board
discussions and debates. The Board believes in
providing as much transparency for shareholders
as is reasonably possible.
The AIC Code
As a member of the AIC, the Company reports
against the principles and provisions of the
AICCode.
The Board has considered the principles and
provisions of the AIC Code. The AIC Code
addresses the principles and provisions set out
inthe UK Code, as well as setting out additional
provisions on issues that are of specic
relevance to the Company. The AIC Code can be
found on the AIC website at www.theaic.co.uk.
The AIC Code includes an explanation of how it
adapts the principles and provisions set out in
the UK Code to make them relevant for
investment companies. The UK Code can be
found on the FRC website at www.frc.org.uk.
The Board considers that reporting against the
principles and provisions of the AIC Code, which
has been endorsed by the FRC and supported
by the JFSC, provides better and more relevant
information to shareholders.
Statement of compliance with the AIC Code
The Board has made the appropriate disclosures
in this report to ensure that the Company
meets its continuing obligations. It should be
noted that, as an investment company, most of
the Company’s day-to-day responsibilities are
delegated to third party service providers. The
Company has no employees and the Directors
are all non-executive, therefore not all of the
provisions of the UK Code are directly applicable
to the Company. The Board considers that the
Company has complied with the principles and
provisions of the AIC Code.
The Board
At 31 December 2023, the Board comprised four
Directors, all of whom are non-executive and are
considered independent. Biographical details of
the Directors are shown on pages 76 and 77.
Under the leadership of the Chairman, the Board
is responsible for the long-term success of the
Company. It provides overall leadership, sets
the strategic aims of the Company and ensures
that the necessary resources are in place for
the Company to meet its objectives and full its
obligations to shareholders within a framework
of high standards of corporate governance and
effective internal controls. The Board has overall
responsibility for the Company’s investment
policy, investment strategy and activities,
including the review of investment activity
and performance and internal controls of the
Investment Manager.
I am pleased to present the Company’s corporate governance
statement for the year ended 31 December 2023.
Board leadership and purpose
Corporate governance statement
80
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Matters reserved for the Board
The Board has approved a formal schedule
of matters reserved for its approval which
is available on the Company’s website and
upon request from the Company Secretary.
Theprincipal matters considered by the Board
during the year included:
— the declaration of dividends;
— the interim and annual nancial statements;
— the Company’s annual expenditure budget;
— the Strategic Review, the Scheme and other
strategic initiatives, including potential
mergers and offer proposals;
— the RCF;
— share buybacks;
— capital allocation;
— recommendations from its committees; and
— amendments and extensions of facilities to
existing borrowers. As previously announced,
no material amendments or extensions of
facilities to existing borrowers will be made
ahead of the Discontinuation Vote at the
2024 AGM without the Board’s prior consent.
A procedure was put in place during the
year between the Board and the Investment
Manager to manage this process.
Culture and purpose
The Chairman, Alex Ohlsson, leads the Board
and is responsible for its overall effectiveness
in directing the Company. He demonstrates
objective judgement, promotes a culture
of openness and debate and facilitates
constructive Board relations and the effective
contribution of all Directors. In liaison with the
Company Secretary, he ensures the Directors
receive accurate, timely and clear information.
TheDirectors are required to act with integrity,
lead by example and promote this culture within
the Company.
The Board seeks to ensure the alignment of its
purpose, values and strategy with this culture
of openness, debate and integrity through
ongoing dialogue and engagement with its
service providers, principally the Investment
Manager. The culture of the Board is considered
as part of the annual performance evaluation
process which is undertaken by each Director.
The culture of the Company’s service providers,
including their policies, practices and behaviour,
is considered by the Board as a whole during the
annual review of the performance and continuing
appointment of all service providers.
Governance
81
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Division of responsibilities
The Board is responsible for the effective stewardship of the Company’s
affairs, including corporate strategy, corporate governance, risk management
and overall investment policy.
Purpose:
Responsible for the long-term success of the Company.
Provides overall leadership, sets out the strategic aims of the Company and ensures that the necessary resources are in place for the
Company to meet its objective and full its obligations to shareholders within a framework of high standards of corporate governance
and effective internal controls.
The Board
Board committees
Audit
committee
Management Engagement
committee
Remuneration and
Nomination committee
Risk
committee
Purpose:
Ensures that the Company’s nancial
performance is properly monitored,
controlled and reported, in addition to
engaging with the Company’s external
Auditor.
Purpose:
Reviews the performance and
continuing appointment of the
Investment Manager and other service
providers.
Purpose:
Considers appointments to the
Board and its individual committees,
makes recommendations with regard
to changes, maintaining a balanced
and effective Board and reviewing
Directors’ remuneration.
Purpose:
Reviews, monitors and assesses the
risks the Company is exposed to, its
risk appetite and the effectiveness
ofthe risk management framework.
Composition at 31 December 2023
Chair: Colin Huelin FCA
Joanna Dentskevich
Marykay Fuller
Chair: Marykay Fuller
Joanna Dentskevich
Alex Ohlsson
Colin Huelin FCA
Chair: Marykay Fuller
Joanna Dentskevich
Alex Ohlsson
Colin Huelin FCA
Chair: Joanna Dentskevich
Alex Ohlsson
Colin Huelin FCA
Marykay Fuller
See Audit committee report on
pages88 to 93.
See Remuneration and Nomination
committee report on pages 85 to 87.
See Risk committee report on
pages94and 95.
The terms of reference of the Board committees can be found on the Company’s website.
Chairman: Alex Ohlsson Joanna Dentskevich Colin Huelin FCA Marykay Fuller
Composition at 31December 2023:
82
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Chairman and Senior Independent Director
The Chairman, Alex Ohlsson, is deemed by
his fellow independent Board members to be
independent in character and judgement and
free of any conicts of interest.
He considers himself to have sufcient time
to spend on the affairs of the Company. He
has no signicant commitments other than
those disclosed in his biography on page 76.
The Chairman’s independence has previously
been noted by Institutional Shareholder
Services, a proxy adviser which publishes voting
recommendations for its clients in respect of
listed issuers, due to his position as managing
partner of Carey Olsen, the Company’s advisers
on Jersey law. The relationship between the
Company and Carey Olsen is not material in
nature and is not considered to present a
conict of interest. The fees paid to Carey Olsen
in the nancial year ended 31December2023
represented 0.18% of the total expenses of
the Company. Furthermore, the Company and
Carey Olsen, a rm of over 50 partners, maintain
procedures to ensure that the Chairman has no
involvement in either the decisions concerning
the engagement of Carey Olsen or the provision
of legal services to the Company.
Joanna Dentskevich is Senior Independent
Director of the Company. She acts as a sounding
board for the Chairman, meets with major
shareholders as appropriate, provides a channel
for any shareholder concerns regarding the
Chairman and takes the lead in the annual
evaluation of the Chairman by the Directors.
In the event the Company experiences a period
of distress, the Senior Independent Director
would work with the Chairman, the other
Directors and shareholders to resolve any issues
Mrs Dentskevich, having served almost nine
years on the Board, does not intend to seek
re-election as a non-executive Director of the
Company at the 2024 AGM. The Board will review
the position of Senior Independent Director
once the new Director is appointed and make
appropriate changes as required.
A schedule of responsibilities of the Chairman
and the Senior Independent Director is available
on the Company’s website.
Committees
At the year end, the structure included an Audit
committee, a Risk committee, a Management
Engagement committee and a Remuneration and
Nomination committee. The terms of reference
for each of the committees are available on the
Company’s website or upon request from the
Company Secretary.
Audit committee
The membership and activities of the Audit
committee are described in its report on pages
88 to 93.
Risk committee
The membership and activities of the Risk
committee are described in its report on pages
94 and 95.
Management Engagement committee
The Management Engagement committee
comprises all Directors. It meets at least once
a year to consider the performance of the
Company’s key service providers, including
the Investment Manager, the terms of their
engagement, remuneration and their continued
appointment.
During the year, the Board, through its
Management Engagement committee, reviewed
the services of the Broker and, as a result,
Barclays Bank plc (acting through its investment
bank) was appointed as the Company’s sole
Broker on 16 October 2023.
Following the committee’s assessment of the
Company’s third party service providers, it
was recommended to, and approved by, the
Board that the third party service providers
beretained.
Subject to the Discontinuation Vote, it is
the committee’s current intention that the
Investment Manager is retained to provide
investment management services in connection
with the Orderly Realisation, subject to revised
terms of the Investment Manager agreement.
Thecommittee considers the Investment
Manager to be best placed to provide such
services taking into account its knowledge
and experience of the Company’s investment
portfolio.
To this effect, the committee has commenced
discussions with the Investment Manager
in respect of proposals for the provision of
investment management services during the
Orderly Realisation under revised terms that seek
to incentivise the Investment Manager to achieve
the objective of maximising shareholder returns
in a timely manner.
Remuneration and Nomination committee
The membership and activities of the
Remuneration and Nomination committee are
described in its report on pages 85 to 87.
Meetings
The Board holds meetings on a quarterly basis and additional meetings are held when necessary. The number of scheduled meetings of the Board and
committees held during the year and the attendance of individual Directors are shown below:
Quarterly Board Audit Risk
Directors
Number
entitled
to attend
Number
attended
Number
entitled
to attend
Number
attended
Number
entitled
to attend
Number
attended
Alex Ohlsson 4 4 — — 4 3
Joanna Dentskevich 4 4 4 4 4 4
Colin Huelin FCA 4 4 4 4 4 4
Marykay Fuller 4 4 4 4 4 4
Governance
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GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Division of responsibilities continued
Meetings continued
Management Engagement Remuneration and Nomination
Directors
Number
entitled
to attend
Number
attended
Number
entitled
to attend
Number
attended
Alex Ohlsson 2 2 6 6
Joanna Dentskevich 2 2 6 6
Colin Huelin FCA 2 2 6 6
Marykay Fuller 2 2 6 6
During the year, 16 additional Board meetings
were held. These meetings were in respect of:
— share buybacks;
— strategic initiatives, including mergers and
offer proposals;
— the Strategic Review;
— extension of the RCF;
— changes to the key person within the
investment management agreement;
— capital allocation;
— review and consideration of the going
concern and viability assessment prepared
bythe Investment Manager; and
— approval of the half-yearly and annual
nancialstatements.
Directors are encouraged to give the chair
their views and comments on matters to be
discussed in advance when they are unable to
attend a meeting. In addition to their meeting
commitments, the non-executive Directors liaise
with the Investment Manager when required
and maintain regular contact outside theBoard
meeting schedule.
At each Board and committee meeting, the
Directors follow a formal agenda, circulated in
advance by the Company Secretary, which may
include a review of the Group’s investments and
associated matters such as gearing, dividend
policy, asset and capital allocation, risks,
marketing and investor relations, economic and
sector issues, regulatory changes and corporate
governance best practice. The Company’s service
providers also provide the Board with relevant
information to support each formal agenda.
TheBoard considers the Company’s investment
policy, objective and strategy in these meetings.
Company Secretary
The Board has access to the Company Secretary
to advise on governance and day-to-day
administrative matters. The Company Secretary
is responsible for ensuring the Board receive the
timely delivery of information and reports which
the Directors require and that the statutory
obligations of the Company are met.
Market Abuse Regulation
Following the implementation of MAR on
3July2016, the Board formally adopted revised
procedures in relation to the management,
identication and disclosure of inside information
and share dealing in accordance with MAR.
Anti-bribery and tax evasion
The Company has developed appropriate
anti-bribery policies and procedures.
TheCompany has a zero-tolerance policy
towards bribery and is committed to carrying out
itsbusiness fairly, honestly and openly.
The Company does not tolerate tax evasion in
its business. The Company complies with the
relevant UK law and regulation in relation to
the prevention of facilitation of tax evasion and
supports efforts to eliminate the facilitation
of tax evasion worldwide. TheCompany works
to make sure itsstakeholders share this
commitment.
UK AIFM Regime
The Company is classed as an externally managed
AIF under the UK AIFM Regime. The Board has
appointed the Investment Manager as the
authorised AIFM to the Company and Apex
Financial Services (Corporate) Limited as the
Company’s Depositary under the UK AIFM Regime.
AIFM remuneration
The Investment Manager is authorised as an
AIFM by the FCA under the UK AIFM Regime.
TheCompany has provided disclosures on its
website incorporating the requirements of the
UK AIFM Regime.
The total remuneration paid to the Investment
Manager by the Company is disclosed in note 18
to the nancial statements.
MiFID II
The ordinary shares and C shares (while in issue)
of the Company are considered ‘non-complex’ in
accordance with MiFID II.
Non-mainstream pooled investments
The Board notes the rules of the FCA on
the promotion of non-mainstream pooled
investments.
The Board conrms that it conducts the
Company’s affairs, and intends to continue to
conduct its affairs, so the Company’s shares
will be ‘excluded securities’ under the FCA’s
rules. This is on the basis that the Company
would qualify for approval as an investment
trust by the Commissioners for HM Revenue and
Customs under Sections 1158 and 1159 of the
Corporation Tax Act 2010 if resident and listed in
the UK. Therefore, the Company’s shares will not
amount to non-mainstream pooled investments.
Accordingly, promotion of the Company’s shares
will not be subject to the FCA’s restriction
on the promotion of non-mainstream pooled
investments.
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Annual report and nancial statements 2023
Composition, succession and evaluation
Remuneration and Nomination committee report
Committee
At 31 December 2023, the committee comprised
all four Directors of the Company, all of whom
areconsidered independent.
The committee met six times during the year.
A copy of the terms of reference within which
the committee operates is available on the
Company’s website or from the Company
Secretary upon request.
Board composition
The Board believes that it and its committees
have an appropriate composition and blend of
skills, experience, independence and diversity
of backgrounds to discharge their duties and
responsibilities effectively. The Board is of
the view that no one individual or small group
dominates decision making. The Board, via its
Remuneration and Nomination committee, keeps
its membership, and that of its committees,
under review to ensure that an acceptable
balance is maintained, and that the collective
skills and experience of its members continue to
be refreshed.
Directors’ attendance at all committee
meetings held during the year and their relevant
experience is detailed on pages 83 and 84 and 76
and 77 respectively.
Induction of new Directors and training
The Chairman, in conjunction with the Company
Secretary, ensures that all new Directors receive
a full, formal and tailored induction on joining.
An induction pack is provided to new Directors
containing relevant information about the
Company, its constitutional documents, terms of
reference, policies, processes and procedures.
New Directors meet with relevant persons at
the Investment Manager and the Chairman
provides guidance and mentoring as appropriate.
Aprogramme of induction training is agreed with
each new Director.
The Directors are encouraged to keep up to date
and attend training courses on relevant matters.
The Company has a continuing professional
development policy which is reviewed annually.
Independence
The committee has reviewed the conicts,
relationships, other positions and tenure of all
the Board members and continues to be satised
that no material interests exist which would
impact the ability of each Director to exercise
independent judgement.
Accordingly, the Board considers all Directors
on the Board to be independent in character
and judgement and entirely independent of the
Investment Manager. The Directors’ conicts of
interest are detailed in note 18 to the nancial
statements.
I am pleased to present the Remuneration and Nomination
committee report for the year ended 31 December 2023.
Marykay Fuller
Chair of the Remuneration
andNominationcommittee
Governance
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Annual report and nancial statements 2023
Composition, succession and evaluation continued
Remuneration and Nomination committee report continued
Tenure
The Board’s policy regarding tenure of service,
including in respect of the Chairman, is that
any decisions regarding tenure will balance
the need to provide and maintain continuity,
knowledge, experience and independence,
against the needto periodically refresh the
Board composition to maintain an appropriate mix
of the required skills, experience, age and length
of service.
The Board does not consider that lengthy service
in itself necessarily undermines a Director’s
independence nor that each Director, including
the Chairman, should serve for a nite xed
period.
The appointment date of each Director is shown
on pages 76 and 77. In October 2024, three of
the Company’s Directors will have served on
the Board for a period of nine years. In light of
the outcome of the Strategic Review, Joanna
Dentskevich and Colin Huelin, each having
served almost nine years, do not intend to seek
re-election as non-executive Directors of the
Company at the 2024 AGM.
Succession
As a result of the vacancies created by Mrs
Dentskevich and Mr Huelin leaving the Board
in May 2024, the Company is in the process of
recruiting a new Jersey-based independent
non-executive Director to join the Board. The
recruitment and selection process are expected
to conclude before the posting of the notice of
the Company’s AGM on 20 May 2024. The Board
has engaged Maven Partners, an independent
consultant with no connection to the Company,
its Directors or the Investment Manager, for the
recruitment process.
The appointment is subject to the approval of the
JFSC and shareholder approval at the 2024 AGM.
Subject to such approvals, following the completion
of the AGM, the Board will comprise three non-
executive Directors: Mr Ohlsson, who will continue
as Chairman, Ms Fuller and the new Director. The
Board will review the composition of its committees
once the new Director is appointed.
In determining the succession plan which will
address the Board’s structure, composition and
diversity, the Remuneration and Nomination
committee have reviewed the recommended
changes to the Company’s investment policy and
objectives proposed by the Board as a result of
the Strategic Review.
As a result of the changes in Board composition
after the AGM, the Remuneration and Nomination
committee will also review each committee’s
responsibilities, composition and compensation.
Taking into consideration these matters and the
results of the 2023 internal Board evaluation,
the Remuneration and Nomination committee
have recommended the Board retain Mr Ohlsson
as Chairman to benet from his experience and
expertise. He has led the fund since its IPO in2015.
Performance evaluation
The Directors are aware of the need to
continually monitor and improve performance
and recognise that regular Board evaluation is
a valuable feedback mechanism for improving
Board effectiveness.
In line with the recommendations of the AIC
Code, an external evaluation is carried out
every three years. In intervening years, such as
this year, internal evaluations are carried out
through a questionnaire. The questionnaire is
specically designed to assess the strength
and independence of the Board, the Chairman
and the individual Directors, the performance
and focus of Board and committee meetings,
the need for additional information required to
facilitate Board discussions and each Director’s
continuing capacity. The results of the evaluation
are presented to the Remuneration and
Nomination committee and subsequently to the
Board, with any key recommendations driven
forward by the committee with assistance from
the Company Secretary and Investment Manager,
where relevant.
Diversity
Diversity is an important consideration to ensure
the Board and its committees have the right
balance of skills, experience, independence
and knowledge necessary to discharge their
responsibilities. The right blend of perspectives
is critical to ensuring an effective board and a
successful company.
Board diversity, including, but not limited to,
gender, ethnicity, professional and industry
specic knowledge and expertise, understanding
of geographic markets and different cultures,
is taken into account when evaluating the skills,
knowledge and experience desirable to ll
vacancies on the Board as and when they arise.
Board appointments are made based on merit
and calibre with the most appropriate candidate,
who is the best t for the Company, nominated
for appointment.
As a result, no measurable targets in relation to
Board diversity have been set. At the date of this
report, the Board consists of two males and two
females.
The committee believes the Directors provide,
individually and collectively, the breadth of skill
and experience to manage the Company.
The committee notes the recommendations of
the FTSE Women Leaders Review and the Parker
Review on gender and diversity, as well as the
FCA rules on diversity and inclusion on company
boards. Namely, that from accounting periods
starting on or after 1 April 2022:
a) at least 40% of individuals on the Board
should be women;
b) at least one senior Board position should
beheld by a woman; and
c) at least one individual on the Board should
befrom a minority ethnic background.
The committee continues to develop
its succession plan in line with these
recommendations, noting that both (a) and (b)
are currently satised. There are two female
Directors on the Board and one of these,
Joanna Dentskevich, holds the role of Senior
Independent Director.
As a Jersey resident company, the Board must
comprise at least two Jersey resident Directors
and, for tax purposes, each Board meeting should
be held with a majority of Directors present in
Jersey. This affects the Company’s ability to
source ethnically diverse Directors. The 2021
census of the population of Jersey showed
that of a population of 103,297, only 4.1% were
from a minority ethnic background, compared
to England and Wales which had a population of
66.8 million in 2019, of which 15.2% were from a
minority ethnic background.
In addition, the 2021/22 non-executive Director
remuneration survey conducted by PwC
Channel Islands showed that there is only one
non-executive Director identied as a member
of an ethnic minority out of 120 non-executive
Directors who participated in the survey,
representing 1,525 directorships.
In accordance with Listing Rule 9 Annex 2.1,
thetables on page 87, in the prescribed format,
show the gender and ethnic background of the
Directors.
1. 2019 is the latest ethnic data to be released for England and Wales.
86
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Gender identity
Number of
Board
members
Percentage on
the Board
Number of
senior positions
on the Board
Men 2 50% 1
Women 2 50% 1
Not specied/prefer not to say — — —
Ethnic background
Number of
Board
members
Percentage on
the Board
Number of
senior positions
on the Board
White British or other White (including minority white groups) 4 100% 2
Mixed/Multiple Ethnic Groups — — —
Asian/Asian British — — —
Black/African/Caribbean/Black British — — —
Other ethnic group, including Arab — — —
Not specied/prefer not to say — — —
The data in the above tables was collected through self-reporting by the Directors.
1. The Company is a closed-ended investment company with no employees, hence data for executive management in Listing Rule 9 Annex 2.1 is not applicable.
Overboarding
The Directors consider that as an investment
company, the Company demands less time
commitments than would be required of a
non-executive director of an operating company.
The Directors also believe that a formulaic
approach to assessing whether a director is
able to effectively discharge their duties is not
appropriate given the nature of the Company
anddirectorships.
Prior to their appointment to the Board, a
Director must disclose existing signicant
commitments and conrm that they are able to
allocate sufcient time to the business of the
Company. In addition, a Director must consult
with the Chairman or Senior Independent
Director prior to taking on any listed company,
conicted, time-consuming or otherwise
material board appointment and promptly
notify the Company Secretary of any new board
appointments they take on.
On an annual basis, through the Board’s
internal evaluation, as described on page 86,
each Director’s continuing ability to meet the
time requirements of the role is assessed
by considering, amongst other things, their
attendance at Board, committee and other ad
hoc meetings and events of the Company during
the year as well as the nature and complexity of
other, both public and private, rolesheld.
Directors’ attendance at all Board and
committeemeetings held during the year
is detailed on pages 83 and 84. None of the
Directors hold an executive position of a public
company or chair a public operating company.
The committee believes all the Directors
have sufcient time to meet their Board
responsibilities.
Re-election
Beyond the requirements of the Articles, and
in accordance with the AIC Code, the Board
has agreed a policy whereby all Directors will
seek annual re-election at the Company’s AGM.
Any Director not re-elected would resign in
accordance with applicable Jersey regulatory
requirements.
In light of the outcome of the Strategic Review,
Joanna Dentskevich and Colin Huelin, having each
served for almost nine years, do not intend to
seek re-election as non-executive Directors of
the Company at the 2024 AGM.
As described on page 86 the Company is
currently running a recruitment process to select
a new Jersey-based independent non-executive
Director to join the Board who will be seeking
election at the 2024 AGM.
Alex Ohlsson and Marykay Fuller will be seeking
re-election at the AGM in May 2024.
The Board believes that the incumbent Directors
have the relevant skills and experience to lead
the Company through the proposed Orderly
Realisation. Therefore, the Board recommends
that shareholders vote in favour of Mr Ohlsson
and Ms Fuller’s re-election.
Remuneration
The Directors’ remuneration report on pages
96and 97 details the remuneration policy and
theDirectors’ remuneration during the year.
Marykay Fuller
Chair of the Remuneration and Nomination
committee
24 April 2024
Governance
87
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Audit, risk and internal control
Audit committee report
Colin Huelin FCA
Chair of the Audit committee
I am pleased to present the Audit committee report
for the year ended 31 December 2023.
Statement from the chair
The Board is supported by the Audit committee,
with written terms of reference which are
available on the Company’s website or on request
from the Company Secretary. The committee’s
primary role is monitoring the integrity of the
Company’s nancial reporting to ensure it is
fair, balanced, understandable and provides the
information necessary for shareholders and
other users to assess the Company’s position
and performance, business model and strategy.
The committee is responsible for monitoring
internal controls, in conjunction with the Risk
committee, and the external audit process, which
includes making recommendations to the Board
in respect of the appointment, re-appointment
and remuneration of the Auditor.
Composition and meetings
At 31 December 2023, the committee comprised
Colin Huelin (chair), Joanna Dentskevich and
Marykay Fuller. The qualications and experience
of the Audit committee members are detailed on
pages 76 and 77. In light of the outcome of the
Strategic Review, Joanna Dentskevich and Colin
Huelin, each having served almost nine years, do
not intend to seek re-election as non-executive
Directors of the Company at the 2024 AGM.
The Board will review the composition of the
Audit committee ahead of the AGM and make
appropriate changes as required.
The Board has agreed that the committee chair,
Colin Huelin, a chartered accountant, has recent
and relevant nancial experience as required by
the provisions of the AIC Code.
The committee formally met four times during
the year ended 31 December 2023. Details of
attendance at meetings held during the year
areset out on pages 83 and 84. Various additional
meetings and calls of the committee were held
during the year in respect of:
— interim, year-end and post balance sheet fair
valuations with the independent Valuation
Agent;
— post balance sheet review of the investment
portfolio with the Investment Manager;
— interim and year-end review of the Company’s
going concern and viability analysis with the
Investment Manager; and
— interim review with the Depositary
subsequent to their on-site visit to the
Investment Manager.
Although not members of the committee, the
Company Secretary, the Investment Manager,
the lead audit partner and representatives from
the Company’s Auditor are invited to attend
committee meetings. The Auditor has the
opportunity to meet with the committee without
representatives of the Investment Manager
beingpresent.
The Auditor is not present when their
performance and remuneration is discussed.
Financial reporting
The committee considered the requirements of
the UK Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013 with which it
is complying voluntarily, in line with best practice
reporting. As required under the AIC Code, the
committee specically reviewed the Company’s
annual report and nancial statements, including
the Company’s key performance indicators and
alternative performance measures, to conclude
whether it is:
— fair, balanced, understandable, comprehensive
and consistent with prior year reporting; and
— how the Board assesses the performance and
position of theCompany’s business during and
at the end of the nancial year.
The committee also considered if the annual
report and nancial statements provided
shareholders with the information necessary
to assess the Company’s strategy and business
model. As part of the Strategic Review, the Board
specically sought shareholders’ views in respect
of three strategic options for the Company:
88
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
i) a Continuation, paired with a partial capital
return;
ii) an Orderly Realisation; and
iii) a Potential Sale.
The Board concluded that shareholder value will
be best served by an Orderly Realisation, and that
it recommends shareholders vote in favour of
the Discontinuation Vote to be proposed at the
Company’s 2024 AGM. The committee’s review
and updates to the annual report, including the
governance sections, have considered whether
such changes provide shareholders with the
information necessary to assess all three
strategic options ahead of the Discontinuation
Vote. Aspart of this review, and in conjunction
with the Risk committee, the committee
considered the sustainability disclosures on pages
38 to 57 to ensure that they reect a fair and
balanced view of the impact of climate change on
the performance of the Company’s business.
The committee presented its recommendations
to the Board.
The Board concluded that it considered the
annual report and nancial statements, taken as
a whole, to be fair, balanced and understandable
and to provide the information necessary for
shareholders to assess the Company’s position
and performance, business model and strategy.
In addition to the above matters, the committee’s
work focused on:
— signicant accounting matters recommended
to the Board, and other narrative disclosures
in the half-yearly and annual nancial
statements of the Company, including matters
of judgement in relation to the valuation of
nancial assets at fair value through prot or
loss and an assessment of the methodology.
The committee discussed these matters
with the independent Valuation Agent, the
Investment Manager and the Auditor;
— the effectiveness of the Company’s internal
control environment;
— challenging the results of the Investment
Manager’s stress tests for the purpose of
the going concern and viability statements
and, in conjunction with the Risk committee,
considered the going concern disclosures
on page 72 and in note 2.1 to the nancial
statements;
— overseeing the Company’s relations with the
Auditor, including assessing the conduct and
effectiveness of the audit process and the
Auditor’s independence and objectivity and
recommending the Auditor’s re-appointment
and approval of the Auditor’s fees; and
— the committee’s own terms of reference.
The committee has direct access to the
Auditor and to the key senior staff of the
Investment Manager and reports its ndings and
recommendations to the Board, which retains the
ultimate responsibility for the nancial statements
of the Company. All recommendations made during
the year were accepted by the Board.
Signicant issues considered
After discussions with the Investment Manager and the Auditor, the committee determined that the key risks of material misstatement to the Company’s
nancial statements are related to the fair valuation of the investments as detailed below.
Fair valuation of investments Actions and conclusions
As outlined in notes 11 and 17 to the nancial statements, the
total value of nancial assets at fair value at 31December2023
was £366.8 million (31December 2022: £435.1 million). Market
quotations are not available for these nancial assets such
that their valuation is undertaken using a discounted cash ow
methodology, with exception to the methodology adopted
for valuing the Group’s Co-living group loan and the Group’s
multi-use community facility loan that are based on net
realisable value.
The discount rates adopted to determine the valuation are
selected and recommended by the independent Valuation
Agent. The discount rates are applied to the expected
future cash ows for each investment’s nancial forecasts
determined by the Investment Manager, to arrive at a valuation
(discounted cash ow valuation). The resulting valuation is
sensitive to the discount rate selected. The independent
Valuation Agent is experienced and active in the area of valuing
these investments and adopts discount rates that reect their
current and extensive experience.
The independent Valuation Agent performs semi-annual
nancial asset valuations and provides valuation reports
to the Board. Anyassets subject to discount rate changes
are valued and reported to the Board on a quarterly basis.
The performance of the individual investments and the fair
value of the nancial assets is discussed with the Investment
Manager at each quarterly Board meeting.
The committee met with the independent Valuation Agent prior to and following
issuance of their semi-annual valuation reports to discuss and challenge their fair
valuation of the Company’s loans. The committee also met with the independent
Valuation Agent post year end in March 2024 with the Company’s Broker and requested
the independent Valuation Agent provide a full opinion on the valuation of the
Company’s loans at 31 March 2024. Based on information received from the Investment
Manager since the valuation at 31 December 2023, the independent Valuation Agent
was requested to consider and, if appropriate, report on whether, in their opinion,
the fair valuation of the loans at 31 December 2023 require adjustment to inform the
committee’s consideration of its post balance sheet valuation review. In addition to
how relevant changes in market conditions for a given sector are considered in the
determination of discount rates, the other key challenges posed by the committee to
the independent Valuation Agent were:
a) the rationale for the level of discount rate increases determined by the independent
Valuation Agent for each loan being lower than the observed increase in risk-free
rates; and
b) based on the information received from the Investment Manager, how the
independent Valuation Agent’s assessment of the likelihood of full recovery of loans
is reected in their fair valuation.
Governance
89
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Audit, risk and internal control continued
Audit committee report continued
Fair valuation of investments Actions and conclusions
c) how the structuring of a given loan, the security and the extent of control from the
available enforceable arrangements and level of subordination is reected by the
independent Valuation Agent in their discount rate;
d) the extent to which loans for which contractual repayment is either imminent or
overdue are insensitive to discount rate changes and the impact on fair valuation;
e) the relative disparity between the valuation of assets held for sale versus the fair
valuation of assets held to maturity; and
f) the appropriateness of applying a discounted cash ow valuation methodology or
an alternative, such as assumed realisation based on estimated recovery and/or
appropriate impairment.
During the year and in March 2024, the committee met with the Investment Manager
to discuss portfolio reports provided to the independent Valuation Agent for the
valuations. Thecommittee challenged the judgements and key estimates applied,
including those concerning the impact of ination and/or interest rate protection and
general market conditions. The results of this meeting informed the committee’s review
of post balance sheet events.
The committee was satised that the valuation methodology and judgements, including
the range of the discount rates adopted by the independent Valuation Agent, were
appropriate for the valuation.
The committee also reviewed the disclosures of the sensitivity of discount rates on the
fair valuation in note 17.4. In view of the change in the average weighted discount rate
of 2.1% during the year, the committee considered it was appropriate to increase the
sensitivity range to +/-2%.
Other matters considered during the year
Accounting policies, narrative reporting, critical accounting estimates and key judgements
The committee reviewed the narrative reporting, accounting policies and note 2.2 to the nancial statements that relate to critical accounting estimates
and key judgements and conrmed they are appropriate for the Company.
In particular, in conjunction with the Risk committee, the Audit committee’s review updated the disclosures in note 17.6 relating to credit risk.
The contracted cash repayment prole of the Company’s portfolio at 31 December 2023, including the repayment of historic and future forecast
capitalised interest, and after provisions for certain watchlist and problem loans as advised by the Investment Manager, is disclosed on page 22.
Signicant issues considered continued
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
90
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Annual report and nancial statements 2023
Internal control
The committee’s monitoring and review of the internal controls of the Company was informed as follows:
Scope of reviews to monitor internal
controls
Results and conclusions
1. Regular monitoring of controls during the year:
1.1 Quarterly reports to the Board from the
Investment Manager, Administrator, Compliance
Ofcer and Depositary.
The committee notes that the extent of ongoing departures and recruitment of senior staff referred
to on page 32 is an important consideration for the effective monitoring of internal controls. The
Investment Manager has a clearly dened governance structure with detailed processes that cover
business operations, including investment management and portfolio monitoring and reporting.
It obtains assurance over the design and operation of its nance and IT controls annually through
the completion of an ISAE 3402 audit by external auditor, Deloitte LLP (refer to 2.1 below), and has
introduced new Sarbanes-Oxley controls with an internal audit review as part of the ORIX Group’s
control environment which it is subject to and which is tested annually. The Board’s review of the
services provided by the Investment Manager and the effectiveness of its controls as part of the
quarterly reporting cycle is ongoing to include, subject to the approval by shareholders of the
Discontinuation Vote, its review of the Investment Manager’s policies and procedures to support the
Orderly Realisation.
The Board concluded it’s review of the Administrator in the year and identied areas for
improvement, which the committee is pleased to report have been satisfactorily resolved in the year.
The Board continue to monitor the performance of the Administrator on an ongoing basis.
The Depositary’s report of its on-site visit to review the Investment Manager’s procedures, with
a focus, requested by the Directors, on the effectiveness of the application by the Investment
Manager of partial ination and/or interest rate protection terms for certain loans concluded that
there were no material matters that the Depositary wished to bring to the attention of the Board.
Subsequent to this report, members of the committee met with the Depositary to discuss the
effectiveness of its controls (as per 2.5 below).
1.2 Bi-annual reports from the Investment
Manager’s risk ofcer to the Risk committee.
The Investment Manager’s risk ofcer conrmed that the risk management processes are
appropriate and remain compliant with AIFMD, and appropriate measures are being undertaken to
resolve issues with the reported problem loans, with additional senior resources assigned to assist
with this.
During the year, the Risk committee requested an analysis of the controls in place to ensure that
AIFM was meeting its risk management obligations under AIFMD, as referred to on page 67. This
review is ongoing.
2. Thematic and other monitoring of controls:
2.1 ISAE 3402 Type II reports on the operations
of the key service providers, namely the
Investment Manager, Administrator and its
delegated accounting services.
The committee reviewed the independent reports, which conrmed that the controls tested
operated effectively throughout the relevant periods within the scope of the review undertaken
for such service providers. The committee also obtained bridging letters from the relevant service
providers that conrmed the controls remained in place and were active.
2.2 Annual assurance conrmations provided
by key service providers to the Management
Engagement committee, which covered matters
in relation to nancial crime, cyber security,
fraud prevention and detection, ESG and other
compliance.
The Management Engagement committee reviewed the annual assurance compliance conrmations
and no compliance exceptions were noted.
Governance
91
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Audit, risk and internal control continued
Audit committee report continued
Scope of reviews to monitor internal
controls
Results and conclusions
2.3 Independent testing of the Investment
Manager’s system for managing the Group’s
loans.
The committee reviewed the report of the independent review of the Investment Manager’s
nancial model in April 2023. The independent review conrmed the model has been constructed
appropriately and materially achieves the objective it was designed to meet, in so far as its
logical integrity and input data was concerned, subject to a number of observations of which the
Investment Manager is aware. The plan to enhance the Investment Manager’s system is ongoing and
continues to be monitored by the committee with regular review updates provided by the Investment
Manager during the implementation phase to the Board.
2.4 Assurance over the migration of the
Company’s nominal ledger accounting sub-
delegation by the Administrator to their Group
Subsidiary in India.
With effect from 1 January 2024, the Company’s accounting systems and processes are administered
by the Administrator through their outsourcing agreement to the Group’s Subsidiary in India. This
includes reconciliation of the data extracts of accounting data relating to the Company’s loan
portfolio administered by the Investment Manager to the Company’s new nominal ledger system.
The committee challenged the Administrator and the Depositary’s project approach, including data
mapping/protection/privacy and security considerations. The committee reviewed updates from
both service providers during the implementation phase and at cut-over that conrmed the controls
remained in place and were active.
2.5 Review of the Depositary’s control
procedures.
The committee concluded a review of the Depositary in the year and identied areas for
improvement. Recommendations for improvement remain under review and continue to be
monitored by the Board.
Other matters considered during the year continued
Internal control continued
92
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Going concern and viability statement
The nancial statements have been prepared on
a going concern basis with relevant disclosures
concerning the material uncertainty about the
Company’s ability to continue. The committee
has assessed the Company’s ability to continue
as a going concern and is satised that the
Company has adequate resources to continue
in operational existence for a period of at least
twelve months from the date of approval of the
nancial statements.
The committee also reviewed the Investment
Manager’s ve year stress test analysis for the
purpose of assessing the Company’s viability
for the two possible strategic options of
Continuation or an Orderly Realisation. This
review challenged the assumptions applied and
the rationale for selecting the duration of ve
years for the viability period.
In addition, the committee considered how the
Investment Manager had assessed the impact
of climate risk across the physical assets in the
portfolio and the impact on income generation
asdescribed on pages 55 and 56.
The committee concluded that the Investment
Manager’s assessment of the Company’s
exposure to climate risk as low, is reasonable.
Thisassessment will continue to be monitored
as the Investment Manager’s climate risk
assessment develops.
Further detail on the basis of the going concern
and viability assessment by the Directors is set
out in the strategic report on pages 72 and 73
and in note2.1 to the nancial statements.
External audit
The committee met with the Auditor in
December2023 to review, challenge and agree
their audit plan, and in particular their approach
to the valuation of investments. Further
discussions took place between the Directors
and the Auditor following the announcement of
the Strategic Review.
Independence and objectivity of the Auditor
PwC has been the Auditor of the Company since
its rst annual reporting period in 2016 and Lisa
McClure has been the audit partner since the
nancial year ended 31 December 2021. There are
no contractual obligations restricting the choice
of auditor and the Company will consider placing
the audit service contract out for tender at least
every ten years, being no later than the nancial
year ending 31 December 2026.
To full its responsibility regarding the
independence and objectivity of the Auditor,
theAudit committee considered:
— a report from the Auditor describing its
arrangements for maintaining independence;
— the extent and nature of the non-audit; and
— services provided by the Auditor.
The committee has agreed a policy whereby,
in order to avoid any potential impact on the
independence and objectivity of the Auditor,
the Company and its subsidiaries will not seek to
obtain non-audit services from the Auditor, with
the exception of the review of the half-yearly
report and nancial statements which are
included in the FRC’s whitelist of permitted
non-audit services.
External audit results
The committee met with the Auditor in April2024
to discuss their audit report and opinion, after
the conclusion of their audit.
The Auditor explained the results of their audit
and conrmed there were no adjustments
proposed that were material in the context of the
nancial statements as a whole.
Effectiveness of the external audit
The committee discussed the effectiveness
of the external audit process during the year,
considering the performance, objectivity,
independence and relevant experience of the
Auditor. Following this review, the committee
concluded that the audit was effective.
Re-appointment of the Auditor
The committee continues to be satised with the performance of the Auditor and has recommended the re-appointment of PwC as theCompany’s Auditor
at the 2024 AGM.
The following table summarises the remuneration paid to the Auditor for audit and non-audit services during the year ended 31December2023:
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Audit fees
Annual audit of the Company 170 131
Audit-related services
Review of half-yearly report 36 36
Total 206 167
Colin Huelin FCA
Chair of the Audit committee
24 April 2024
Governance
93
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Joanna Dentskevich
Chair of the Risk committee
Statement from the chair
The purpose of the Risk committee is to assist
the Board in its oversight and assessment of the
risks the Company is exposed to, its appetite
for those risks, the effectiveness of the risk
management framework and to ensure the
external reporting of the Company gives a fair,
balanced and understandable reection of risk
having due regard for the Company’s investment
objective and policy.
Composition and meetings
The committee comprises all four Directors, all of
whom are considered independent and, through
their relevant nancial experience, as set out on
pages 76 and 77, provide effective challenges to
the Company. During the year, thecommittee
formally met four times. Details of attendance at
those meetings are set out on pages 83 and 84.
In light of the outcome of the Strategic Review,
Joanna Dentskevich and Colin Huelin, each having
served almost nine years, do not intend to seek
re-election as non-executive Directors of the
Company at the 2024 AGM. The Board will review
the composition of the Risk committee ahead of
the AGM and make changes as required.
Responsibilities
The committee’s key responsibilities, amongst
others, are:
— to review the risks the Directors have
identied the Company is exposed to;
— to review the appetite of the residual risk of
each identied risk and ensure, for those risks
outside of appetite, appropriate actions are
taken where required;
— in conjunction with the Audit committee,
to review the effectiveness of the internal
controls and risk management framework;
— taking into account the risks identied by
the AIFM, carry out a robust assessment of
the principal and emerging risks facing the
Company, including those that threaten its
business model, future performance, solvency
or liquidity and ability to deliver its strategy;
and;
— provided a description of the principal and
emerging risks along with explanations on how
they are being managed or mitigated and any
changes from previous years in the Company’s
annual report.
A copy of the terms of reference within which
the committee operates is available on the
Company’s website or from the Company
Secretary upon request.
I am pleased to present the Risk committee report
for the year ended 31 December 2023.
Audit, risk and internal control continued
Risk committee report
94
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Risk management and monitoring
The Company has in place a risk register
to manage and track identied risks and
uncertainties and potential emerging risks that
the committee has identied the Company may
be exposed to. For each risk, the committee
considers, inter alia, the impact on the Company
achieving its investment objective along with the
nature and extent of the risk, their mitigants and
any driving factors which may increase the risk.
The level of residual risk determined as part
of this analysis assists the Board (on the
committee’s recommendation) in determining
whether it is within the Company’s risk appetite
and identifying any actions required.
Both the risk register and the nancial crime risk
assessment are reviewed semi-annually in order
to support the committee’s assessment of the
principal risks and uncertainties and emerging
risks the Company reports in the half-yearly
report and annual report.
Details of the Company’s risk management
framework, including the role of the AIFM,
aresetout on page 67.
Principal risks and uncertainties
As a result of the cessation of the Scheme
and the Board’s recommendation following
the Strategic Review, which concluded that
shareholder value would be best served by an
Orderly Realisation, when reviewing the risks
for the year, the Risk committee has identied
two new principal risks and a new principal
uncertainty as detailed on pages 68 to 71.
As a result of potential changes to the articles
and investment objective and policy required
to facilitate an Orderly Realisation, should the
Discontinuation Vote pass, the Board believes
there now exists new emerging risks relating
to the manner in which income and capital are
distributed including the timing, amount and tax
treatment. Further details of these risks will be
detailed in the Orderly Realisation Circular to be
published on 2 May 2024.
Joanna Dentskevich
Chair of the Risk committee
24 April 2024
Governance
95
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Marykay Fuller
Chair of the Remuneration and Nomination
committee
I am pleased to present the Directors’ remuneration report
for the year ended 31 December 2023.
Remuneration
Directors’ remuneration report
The Directors’ remuneration report provides
details on remuneration in the year. Although
it is not a requirement under Jersey Company
Law to have the Directors’ remuneration report
or the Directors’ remuneration policy approved
by shareholders, the Board believes that as a
company whose shares are traded on the London
Stock Exchange, it is good practice for it to
doso.
The Directors’ remuneration report is put to a
shareholder vote every year.
The Directors’ remuneration policy is put to a
shareholder vote at least once every three years
and in any year if there is a change in the policy.
The remuneration policy was put to, and
approved by, shareholders in 2023 and as
there will be no change in the way the policy
will be implemented during the course of the
next nancial year, there is no requirement
for the policy to be put to shareholders at this
year’sAGM.
This report is not subject to audit.
Voting at AGM
The Directors’ remuneration report for the year
ended 31 December 2022 and the Directors’
remuneration policy were approved by
shareholders at the AGM held on 15 May 2023.
The votes cast by proxy were as follows:
Directors’ remuneration report Directors’ remuneration policy
Number of
votes cast
% of
votes cast
Number of
votes cast
% of
votes cast
For 247,889,136 99.98 247,889,136 99.98
Against 28,305 0.01 28,305 0.01
At the Chairman’s discretion 19,000 0.01 19,000 0.01
Total votes cast 247,936,441 100.00 247,936,441 100.00
Number of votes withheld 6,232 — 6,232 —
96
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Performance of the Company
The Board is responsible for the Company’s investment strategy and performance. The management of the Group’s investment portfolio is delegated to
theInvestment Manager through the investment management agreement, as referred to in note 18 to the nancial statements.
The tables below illustrates the total shareholder return for a holding in the Company’s shares as compared to the GBP Corporate Bond Index.
TheCompany considers this to be an appropriate index against which to measure the Company’s performance, in the absence of a meaningful quoted
benchmark index.
Cumulative performance to 31 December 2023
Period
Three
months
Six
months
One
year
Three
years
Five
years
Since
launch
GCP Asset Backed Income Fund Limited 9.7% 9.9% (14.1)% (20.4)% (10.4)% 9.6%
GBP Corporate Bond Index 1.4% 3.6% 2.5% (19.9)% (3.1)% 12.0%
Annual performance to 31 December 2023
Year ended
31 December
2023
Year ended
31 December
2022
Year ended
31 December
2021
Year ended
31 December
2020
Year ended
31 December
2019
GCP Asset Backed Income Fund Limited (14.1)% (7.3)% 13.2% (9.8)% 10.2%
GBP Corporate Bond Index 2.5% (19.3)% (3.3)% 9.1% 11.0%
Basis: percentage growth, shareholder total return with net income reinvested.
Past performance is not a guide to future performance.
Directors’ remuneration
The fees paid to the Directors in the years ended 31 December 2023 and 31 December 2022 are set out below.
Directors’
base fee
£
Chairman
fee
£
Committee
chair fee
£
ESG
representative fee
£
Expenses
£
Total
£
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Alex Ohlsson 48,375 45,000 20,000 15,000 — — — — 1,014 552 69,389 60,552
Joanna Dentskevich 48,375 45,000 — — 10,000 10,000 5,000 5,000 652 126 64,027 60,126
Colin Huelin FCA 48,375 45,000 — — 15,000 10,000 — — 350 643 63,725 55,643
Marykay Fuller 48,375 45,000 — — 10,000 10,000 — — 3,013 755 61,388 55,755
Total 193,500 180,000 20,000 15,000 35,000 30,000 5,000 5,000 5,029 2,076 258,529 232,076
The fees paid to the Directors were in relation to non-executive Director services. At 31 December 2023, liabilities in respect of these services amounted
to £63,000 (31 December 2022: £58,000). No variable remuneration, discretionary payments or payments for loss of ofce were made during the year.
At the beginning of the year, the Board approved an increase to the Directors’ base fee. In a period of signicantly higher ination (twelve month CPI at
28 February 2023 of 10.4% in the UK), the increase in the base fee was limited to 7.5%, with effect from 1 January 2023. In addition, the fee paid to the
Chairman and the chair of the Audit committee was increased by £5,000 each following a review of market comparables and to take into account their
increased workload.
The Remuneration and Nomination committee met in April 2024 and it was agreed that in light of the Strategic Review, the Discontinuation Vote and the
forthcoming changes in the composition of the Board at the AGM in May 2024, there would be a re-allocation of Directors’ remuneration related to revised
committee responsibilities, assignments and compensation after the AGM.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
Governance
97
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Remuneration continued
Directors’ remuneration report continued
Relative importance of spend on pay
The table below sets out, in respect of the year ended 31 December 2023:
— total income;
— the remuneration paid to the Directors;
— the distributions made to shareholders by way of dividend; and
— share repurchases.
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Change
%
Total income 26,310 14,394 82.8
Directors’ remuneration
1
254 230 10.4
Dividends paid to shareholders 27,046 27,766 (2.6)
Share repurchases 6,473 4,647 39.3
1. Excluding Directors’ expenses.
Directors’ interests
At 31 December 2023, the interests of the Directors in the ordinary shares of the Company are as set out below
1
:
31 December
2023
Number
of shares
31 December
2022
Number
of shares
Alex Ohlsson 50,000 50,000
Colin Huelin FCA 34,142 34,142
Joanna Dentskevich 57,379 57,379
Marykay Fuller 19,650 19,650
1. The Directors’ shareholdings are either direct and/or indirect holdings of the ordinary shares in the Company.
There have been no changes to any of the above holdings between 31 December 2023 and the date of this report.
98
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Directors’ remuneration policy
In accordance with the AIC Code, no Director is
involved in deciding his or her own remuneration.
The Board considers that Directors’ fees should
reect duties, responsibilities and the value of
time spent and, as such, the Chairman and the
chairs of Board committees receive additional
remuneration for these roles.
Directors are not eligible for bonuses, pension
benets, share options, long-term incentive
schemes or other benets in respect of
their services as non-executive Directors of
the Company. In addition, no payment will be
made toa Director for loss of ofce, or as
consideration for or in connection with his/her
retirement from ofce.
The Board may, however, allow for additional
remuneration to be paid where Directors, at the
request of the Company, are involved in ad hoc
duties beyond those normally expected as part of
the appointment.
The remuneration of each of the Directors is
subject to xed fee arrangements, paid quarterly
in arrears. Part of the Directors’ fee may be paid
in the form of fully paid shares in the capital of
the Company. At 31 December 2023, no shares
were issued in lieu of payment of the Directors’
fee (31 December 2022: none).
The aggregate of all the Directors’ remuneration
is currently subject to an annual cap of £335,000
in accordance with the Articles and shall be
reviewed annually.
The Company will reimburse the Directors all
reasonable travelling, hotel and other expenses
properly incurred by them in or about the proper
performance of their duties and the taking of
reasonable independent legal advice concerning
matters relating to their directorship, provided
that if and when required by the Company, they
produce receipts to the Company or other
evidence of actual payment of expenses.
The Company is committed to ongoing
shareholder dialogue and any views expressed by
shareholders on the fees being paid to Directors
would be taken into consideration by the Board
when reviewing the Directors’ remuneration
policy and in the annual review of Directors’ fees.
Directors’ fee levels
The Board has set different fee levels to reect the workload, responsibilities and time commitment of the various roles held by Board members. The fee
levels in respect of the year ended 31 December 2023 are in the table below.
31 December
2024
£
31 December
2023
£
Base fee 48,375 48,375
Chairman’s fee 20,000 20,000
Audit committee chair fee 15,000 15,000
Management Engagement committee chair fee 5,000 5,000
Remuneration and Nomination committee chair fee 5,000 5,000
Risk committee chair fee 10,000 10,000
ESG representative fee 5,000 5,000
Approval
The Directors’ remuneration report was approved by the Board and signed on its behalf by:
Marykay Fuller
Chair of the Remuneration and Nomination committee
24 April 2024
1. Subject to the Remuneration and Nomination committee review described on page 96, the responsibilities, composition and compensation of the committees may change
after the AGM. The total Directors’ fees are subject to an annual cap of £335,000 in accordance with the articles of association and subject to annual review.
Governance
99
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Directors’ report
Principal activity and business review
The strategic report has been prepared by the
Directors and should be read in conjunction with
the Chairman’s statement, forming part of the
annual report to shareholders.
Directors
The Directors in ofce during the year and at
31December 2023 are shown on pages 76 and 77.
The terms and conditions of the appointment
of the Directors are formalised in letters of
appointment, copies of which are available for
inspection at the Company’s registered ofce.
None of the Directors have a contract of service
with the Company nor has there been any other
contract or arrangement between the Company
and any Director at any time during the year.
The Company has Directors’ and Ofcers’ liability
insurance and civil liability insurance. Under the
Company’s Articles, the Directors are provided,
subject to the provisions of Jersey legislation,
with an indemnity in respect of liabilities which
they may sustain or incur in connection with their
appointment.
Director conicts of interest
It is the responsibility of each individual Director
to avoid a conict-of-interest situation arising.
The Director must inform the Board as soon
as he or she is aware of an interest that might
conict with the interests of the Company. The
Company’s articles of association authorise
the Board to approve such situations, where it
is deemed appropriate. A register of conicts
is maintained by the Company Secretary and is
reviewed at Board meetings, to ensure that any
authorised conicts remain appropriate. The
Directors are required to conrm whether there
has been any change in their position at these
meetings.
The Directors must also comply with the
statutory rules requiring company directors to
declare any interest in an actual or proposed
transaction or arrangement with the Company.
Further details of the Directors’ conicts
of interest can be found in note 18 to the
nancialstatements.
Share capital
At the Annual General Meeting held on
15May2023, the Company was granted the
authority to allot ordinary shares up to 10% of
its total issued share capital at that date on a
non-pre-emptive basis, amounting to 44,203,351
ordinary shares. No ordinary shares have been
allotted under this authority during the year.
Details of the movements in share capital during
the year are set out in the statement of changes
in equity on page 112 and in note 16 tothe
nancial statements.
The Company will not seek renewal of this
authority at the 2024 AGM.
Furthermore, at the 2022 AGM, the Company was
granted the authority to purchase up to 14.99%
of the Company’s ordinary share capital in issue
at the date on which the notice of the AGM
was published. This authority will expire at the
conclusion of, and renewal will be sought at, the
AGM to be held on 20 May 2024.
During the year, the Company repurchased under
this authority a total of 8,525,000 shares at a
weighted average price of 75.85 pence per share,
a discount to the prevailing NAV.
At 31 December 2023, the Company’s issued
share capital comprised 442,033,518 ordinary
shares of no par value, 16,407,459 of which are
held in treasury. The total voting rights of the
Company at 31 December 2023 were 425,626,059,
being the issued share capital minus the shares
held in treasury.
At general meetings of the Company, every
ordinary shareholder shall have one vote in
respect of every ordinary share and every
Cshareholder, if any, shall have one vote in
respect of every C share. At31December2023,
there were no C shares in issue
(31December2022: none).
Dividends
Details of the dividends paid and declared during
the year are set out in note 9 to the nancial
statements. As the last dividend in respect of any
nancial period is payable prior to the relevant
AGM, it is declared as an interim dividend and,
accordingly, there is no nal dividend payable.
The Board is conscious that this means that
shareholders will not be given the opportunity
to vote on the payment of a nal dividend.
Accordingly, it has been decided that
shareholders will be asked to conrm their
approval of the Company’s dividend policy at the
forthcoming AGM.
The Company has the authority to offer a scrip
dividend alternative under which shareholders
elect to receive new ordinary shares in lieu of the
cash dividend.
The price of a new ordinary share to be issued
under the scrip dividend alternative is calculated
by taking the average of the Company’s closing
middle market quotations of an ordinary share
for the ex-dividend date and the four subsequent
dealing days.
As a result of the Company’s ordinary shares
trading at a discount to the prevailing NAV, the
Board exercised its discretion to suspend the
scrip dividend alternative.
The Board will keep under consideration the offer
of a scrip dividend alternative in respect of future
quarterly dividends if the Company’s ordinary
shares trade at a premium to the prevailing
published NAV at the relevant time.
Greenhouse gas emissions
Refer to the sustainability section on page 57 for
information.
The corporate governance statement set out on
pages 74 to 99 forms part of this report.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
100
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Signicant voting rights
At the date of the report, the Company has been informed of the following holdings representing more than 3% of the voting rights of the Company:
Name Shares held
Percentage
of total
voting rights
Valu-Trac Investment Management 39,391,667 9.26%
CCLA Investment Management 33,419,060 7.85%
Close Asset Management 29,202,559 6.86%
Waverton Investment Management 24,327,948 5.72%
West Yorkshire Pension Fund 18,421,098 4.33%
Integrated Financial Arrangements 14,380,811 3.38%
Canopius 13,544,656 3.18%
Raymond James Investment Services 13,376,927 3.14%
Hargreaves Lansdown Asset Management 12,758,260 3.00%
The Company has been informed of the following changes between 31 December 2023 and the date of this report:
Name Shares held
Percentage
of total
voting rights
Valu-Trac Investment Management 39,391,667 9.26%
CCLA Investment Management 33,419,060 7.85%
Close Brothers Asset Management 28,219,768 6.63%
Waverton Investment Management 24,162,929 5.68%
West Yorkshire Pension Fund 18,421,098 4.33%
Integrated Financial Arrangements 14,466,369 3.40%
Canopius 13,544,656 3.18%
Raymond James Investment Services 13,239,774 3.11%
Auditor
PwC has expressed its willingness to continue as Auditor of the Company and resolutions for its re-appointment and to authorise the Audit committee to
determine its remuneration will be proposed at the forthcoming AGM.
The Directors holding ofce at the date of this annual report conrm that, so far as they are each aware, there is no relevant audit information of which the
Company’s Auditor is unaware.
Each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to
establish the Company’s Auditor is aware of that information.
Financial risk management
Information about the Company’s nancial risk management objectives and policies is set out in note 17 to the nancial statements.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specied information in a single identiable section of the annual report or a cross reference table
indicating where the information is set out.
The information required under Listing Rule 9.8.4(7) in relation to allotments of shares is set out under the heading ‘Share capital’ on page 100. The
Directors conrm that there are no other disclosures required in relation to Listing Rule9.8.4.
On behalf of the Board
Alex Ohlsson
Chairman
24 April 2024
Governance
101
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
What’s in
this section
Financial statements
Statement of Directors’ responsibilities
Page 104
Independent Auditor’s report
Pages 105 to 109
Statement of comprehensive income
Page 110
Statement of nancial position
Page 111
Statement of changes in equity
Page 112
Statement of cash ows
Page 113
Notes to the nancialstatements
Pages 114 to 138
102
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
103
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Statement of Directors’ responsibilities
In respect of the annual report and nancial statements
Under the terms of the DTRs of the FCA,
the Directors are responsible for preparing
the annual report and nancial statements
in accordance with applicable law and IFRS
Accounting Standards.
Companies Law requires the Directors to prepare
nancial statements for each year, which give a
true and fair view of the state of affairs of the
Company and the prot or loss for that year.
The Directors are required to:
— properly select suitable accounting policies
and apply them consistently;
— present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
— provide additional disclosures when
compliance with the specic requirements
ofIFRS Accounting Standards are insufcient
to enable users to understand the impact
of particular transactions, other events and
conditions on the Company’s nancial position
and nancial performance;
— make judgements and estimates that are
reasonable and prudent; and
— make an assessment of the Company’s ability
to continue as a going concern.
The Directors are responsible for keeping
adequate accounting records that disclose
with reasonable accuracy at any time the
nancial position of the Company. They are also
responsible for safeguarding the assets of the
Company and hence for taking reasonable steps
for the prevention and detection of fraud and
other irregularities.
The Directors have overall responsibility for the
maintenance and integrity of the corporate and
nancial information included on the Company’s
website.
Legislation in Jersey governing the preparation
and dissemination of nancial statements may
differ from legislation in other jurisdictions.
Directors’ responsibility statement
In accordance with the FCA’s DTRs, each of the
Directors, whose names are set out on pages
76 and 77, conrms that to the best of his or her
knowledge:
— the annual report and nancial statements,
which have been prepared in accordance
with IFRS Accounting Standards, give a true
and fair view of the assets, liabilities, nancial
position and prot or loss of the Company;
and
— the strategic report, including the Directors’
report, includes a fair and balanced review
of the development and performance of the
business, and the nancial position of the
Company, together with a description of the
principal risks and uncertainties that the
Company faces.
The annual report and nancial statements, taken
as a whole, are considered by the Board to be
fair, balanced and understandable, and provide
the information necessary for shareholders to
assess the Company’s position, performance,
business model and strategy.
On behalf of the Board
Alex Ohlsson
Chairman
24 April 2024
104
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Independent Auditor’s report
To the members of GCP Asset Backed Income Fund Limited
Report on the audit of the
nancialstatements
Our opinion
In our opinion, the nancial statements give a
true and fair view of the nancial position of
GCP Asset Backed Income Fund Limited (the
“company”) as at 31 December 2023, and of
its nancial performance and its cash ows
for the year then ended in accordance with
IFRS Accounting Standards as issued by the
International Accounting Standards Board (“IFRS
Accounting Standards”) and have been properly
prepared in accordance with the requirements of
the Companies (Jersey) Law 1991.
What we have audited
The company’s nancial statements comprise:
— the statement of nancial position as at
31December 2023;
— the statement of comprehensive income for
the year then ended;
— the statement of changes in equity for the
year then ended;
— the statement of cash ows for the year then
ended; and
— the notes to the nancial statements,
comprising material accounting policy
information and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (“ISAs”).
Our responsibilities under those standards are
further described in the Auditor’s responsibilities
for the audit of the nancial statements section
of our report.
We believe that the audit evidence we have
obtained is sufcient and appropriate to provide
a basis for our opinion.
Independence
We are independent of the company in
accordance with the ethical requirements
that are relevant to our audit of the nancial
statements of the company, as required by the
Crown Dependencies’ Audit Rules and Guidance.
We have fullled our other ethical responsibilities
in accordance with these requirements.
Material uncertainty related to going
concern
We draw attention to note 2 in the nancial
statements, which indicates that the ultimate
decision on the future state of the company
is outside the control of the Directors and
will be known only once the shareholders’
vote on the discontinuation of the company
at the annual general meeting on 20 May 2024
and the outcome of the Proposals tabled
for shareholders’ approval at the proposed
extraordinary general meeting have been
concluded. As stated in note 2, these events or
conditions, along with other matters as set forth
in note 2, indicate that a material uncertainty
exists that may cast signicant doubt on the
company’s ability to continue as a going concern.
Our opinion is not modied in respect of this
matter.
Our audit approach
Overview
Audit scope
— The company is based in Jersey and the
nancial statements include its investments
in the Subsidiary and other investments as
nancial assets through prot or loss.
— Our audit work was performed solely in Jersey
for the audit of the nancial statements of the
company.
— We tailored the scope of our audit taking
into account the types of investments within
the company, the accounting processes
and controls, and the industry in which the
company operates.
— We conducted our audit of the nancial
statements based on information provided
by the appointed service providers to the
company to whom the Board of Directors has
delegated the provision of certain functions,
including Gravis Capital Management Limited
(the “Investment Manager and AIFM”) and
Apex Financial Services (Alternative Funds)
Limited (the “Administrator”).
Key audit matters
— Material uncertainty related to going concern.
— Valuation of nancial assets at fair value
through prot or loss: investment in
Subsidiary.
Materiality
— Overall materiality: GBP 9.9 million (2022:
GBP10.3 million) based on 2.5% of net assets.
— Performance materiality: GBP 7.4 million (2022:
GBP 7.7 million).
The scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the nancial statements. In
particular, we considered where the Directors
made subjective judgements; for example, in
respect of signicant accounting estimates that
involved making assumptions and considering
future events that are inherently uncertain.
Asin all of our audits, we also addressed the risk
of management override of internal controls,
including among other matters, consideration
of whether there was evidence of bias that
represented a risk of material misstatement
dueto fraud.
Key audit matters
Key audit matters are those matters that, in
the auditor’s professional judgement, were of
most signicance in the audit of the nancial
statements of the current period and include
the most signicant assessed risks of material
misstatement (whether or not due to fraud)
identied by the auditor, including those which
had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit;
and directing the efforts of the engagement
team. These matters, and any comments we make
on the results of our procedures thereon, were
addressed in the context of our audit of the
nancial statements as a whole, and in forming
our opinion thereon, and we do not provide a
separate opinion on these matters.
In addition to the matter described in the
Material uncertainty related to going concern
section, we have determined the matters
described below to be the key audit matters to
be communicated in our report.
This is not a complete list of all risks identied by
our audit.
Financial statements
105
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Our audit approach continued
Key audit matters continued
Key audit matter How our audit addressed the key audit matter
Valuation of nancial assets at fair value through
prot or loss:
Investment in Subsidiary
Refer to note 11 and note 17 of the nancial statements
The valuation of nancial assets at fair value through prot
or loss: investment in Subsidiary (“investment in Subsidiary”)
drives a number of key performance indicators, such as net
asset value, which is of signicant interest to investors and
the market.
The fair value of the investment in Subsidiary is substantially
derived from the fair value of secured loan notes to the
endborrower.
The valuations of secured loan notes are performed using
contractual cash ows generated by each loan facility
over a medium to long-term period and by selecting
key assumptions such as the discount rate adjusted as
appropriate for market, credit and liquidity risk factors.
The nature of discounted cash ow (“DCF”) is inherently
subjective due to key assumptions used for the discount
rate and the amount or timing of cash ows supporting the
interest and capital repayments on debt positions held.
The existence of signicant estimation uncertainty,
coupled with the fact that small percentage differences in
assumptions to the valuations when aggregated could result
in material misstatement, are the reasons for our specic
audit focus and attention to this area.
As a result of the inherent nature of the key assumptions
used in the DCF model, the Directors appointed an external
Valuation Agent to support them in ascertaining the fair
value of secured loan notes.
We have performed the following procedures:
— Discussions were held with the Directors of the company and the Investment
Manager to enable us to understand and evaluate the controls in place over the
valuation process.
— We assessed the company’s external valuation agent’s independence, qualications
and expertise and read their terms of engagement with the company to determine
whether there were any matters that might have affected their objectivity or may
have imposed scope limitations upon their work.
— We read the valuation report issued by the external Valuation Agent and understood
the valuation approach used.
— We engaged valuation experts from PwC UK London to assess the reasonableness of
the methodology applied by the external valuation agent with regards to a sample of
investments and the reasonableness of key assumptions used.
— We held discussions with the Investment Manager to understand the monitoring
process of the borrowers’ payments and nancial performance, in identifying
circumstances that can materially impact the recoverability of the contractual cash
ows.
— We agreed a sample of the contractual cash ows used in the DCF calculation to
the contractual payment schedule of the loan facility agreements and tested the
mathematical accuracy of the DCF calculation. The following procedures were
carried out:
— for a sample of new secured loans, we tested the drawdowns to signed facility
agreements, note certicates and bank payments;
— for a sample of Secured loan notes repaid during the year, we tested the
movement to signed facility agreements and cash payments;
— for a sample of interest received during the year, we agreed the amounts to bank
payments; and
— for a sample of interest accrued during the year, we recomputed the amounts
using the interest rates as per the facility agreements and the outstanding
balances of the loan amounts at the relevant period.
— We challenged the assumptions used in the valuation models.
— We considered the adequacy of the company’s disclosures.
— We also considered the disclosure of the degree of sensitivity when a reasonably
possible change in a key assumption could give rise to a change in the fair value.
Based on the above procedures, we have not identied any material matters to report
to those charged with governance.
Independent Auditor’s report continued
To the members of GCP Asset Backed Income Fund Limited
106
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the nancial statements as a whole, taking
into account the structure of the company, the accounting processes and controls, the industry in which the company operates, and we considered the
risk of climate change and the potential impact thereof on our audit approach.
Materiality
The scope of our audit was inuenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
nancial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the nancial statements
as a whole.
Based on our professional judgement, we determined materiality for the nancial statements as a whole as follows:
Overall materiality GBP 9.9 million (2022: GBP 10.3 million)
How we determined it 2.5% of net assets
Rationale for benchmark applied We believe that net assets is the most appropriate benchmark because this is the key metric of interest to
investors. It is also a generally accepted measure used for companies in this industry.
We use performance materiality to reduce
to an appropriately low level the probability
that the aggregate of uncorrected and
undetected misstatements exceeds overall
materiality. Specically, we use performance
materiality in determining the scope of our audit
and the nature and extent of our testing of
account balances, classes of transactions and
disclosures, for example in determining sample
sizes. Our performance materiality was 75%
(2022: 75%) of overall materiality, amounting
to GBP 7.4 million (2022: GBP 7.7 million) for the
company nancial statements.
In determining the performance materiality, we
considered a number of factors – the history of
misstatements, risk assessment and aggregation
risk and the effectiveness of controls - and
concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we
would report to them misstatements identied
during our audit above GBP 496,000 (2022: GBP
515,000) as well as misstatements below that
amount that, in our view, warranted reporting for
qualitative reasons.
Reporting on other information
The other information comprises all the
information included in the Annual report and
nancial statements (the “Annual Report”) but
does not include the nancial statements and
our auditor’s report thereon. The Directors are
responsible for the other information.
Our opinion on the nancial statements does
not cover the other information and we do
not express any form of assurance conclusion
thereon.
In connection with our audit of the nancial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the nancial statements or our
knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on
the work we have performed, we conclude that
there is a material misstatement of this other
information, we are required to report that
fact. We have nothing to report based on these
responsibilities.
Responsibilities for the nancial statements
and the audit
Responsibilities of the Directors for the
nancial statements
As explained more fully in the Statement of
Directors’ responsibilities’, the Directors are
responsible for the preparation of the nancial
statements that give a true and fair view in
accordance with IFRS Accounting Standards, the
requirements of Jersey law and for such internal
control as the Directors determine is necessary
to enable the preparation of nancial statements
that are free from material misstatement,
whether due to fraud or error.
In preparing the nancial statements, the
Directors are responsible for assessing the
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of
accounting unless the Directors either intend to
liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Financial statements
107
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Responsibilities for the nancial statements
and the audit continued
Auditor’s responsibilities for the audit of
the nancial statements
Our objectives are to obtain reasonable
assurance about whether the nancial
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually or in
aggregate, they could reasonably be expected to
inuence the economic decisions of users taken
on the basis of these nancial statements.
Our audit testing might include testing complete
populations of certain transactions and balances,
possibly using data auditing techniques. However,
it typically involves selecting a limited number of
items for testing, rather than testing complete
populations. We will often seek to target
particular items for testing based on their size or
risk characteristics. In other cases, we will use
audit sampling to enable us to draw a conclusion
about the population from which the sample is
selected.
As part of an audit in accordance with ISAs, we
exercise professional judgement and maintain
professional scepticism throughout the audit.
We also:
— Identify and assess the risks of material
misstatement of the nancial statements,
whether due to fraud or error, design and
perform audit procedures responsive to
those risks, and obtain audit evidence that is
sufcient and appropriate to provide a basis
for our opinion. The risk of not detecting a
material misstatement resulting from fraud
is higher than for one resulting from error,
as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or
the override of internal control.
— Obtain an understanding of internal control
relevant to the audit in order to design audit
procedures that are appropriate in the
circumstances, but not for the purpose of
expressing an opinion on the effectiveness of
the company’s internal control.
— Evaluate the appropriateness of accounting
policies used and the reasonableness of
accounting estimates and related disclosures
made by the Directors.
— Conclude on the appropriateness of the
Directors’ use of the going concern basis of
accounting and, based on the audit evidence
obtained, whether a material uncertainty
exists related to events or conditions that
may cast signicant doubt on the company’s
ability to continue as a going concern over a
period of at least twelve months from the date
of approval of the nancial statements. If we
conclude that a material uncertainty exists,
we are required to draw attention in our
auditor’s report to the related disclosures in
the nancial statements or, if such disclosures
are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence
obtained up to the date of our auditor’s
report. However, future events or conditions
may cause the company to cease to continue
as a going concern.
— Evaluate the overall presentation, structure
and content of the nancial statements,
including the disclosures, and whether the
nancial statements represent the underlying
transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit and
signicant audit ndings, including any signicant
deciencies in internal control that we identify
during our audit.
We also provide those charged with governance
with a statement that we have complied with
relevant ethical requirements regarding
independence, and to communicate with
them all relationships and other matters that
may reasonably be thought to bear on our
independence, and where applicable, related
safeguards.
From the matters communicated with those
charged with governance, we determine those
matters that were of most signicance in the
audit of the nancial statements of the current
period and are therefore the key audit matters.
We describe these matters in our auditor’s
report unless law or regulation precludes
public disclosure about the matter or when, in
extremely rare circumstances, we determine
that a matter should not be communicated in
our report because the adverse consequences
of doing so would reasonably be expected to
outweigh the public interest benets of such
communication.
Use of this report
This report, including the opinions, has been
prepared for and only for the members as a body
in accordance with Article 113A of the Companies
(Jersey) Law 1991 and for no other purpose.
We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to
any other person to whom this report is shown
or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Independent Auditor’s report continued
To the members of GCP Asset Backed Income Fund Limited
108
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Report on other legal and regulatory
requirements
Company Law exception reporting
Under the Companies (Jersey) Law 1991 we are
required to report to you if, in our opinion:
— we have not received all the information and
explanations we require for our audit;
— proper accounting records have not been
kept; or
— the nancial statements are not in agreement
with the accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the
Directors’ statements in relation to going
concern, longer-term viability and that part of
the corporate governance statement relating to
the company’s compliance with the provisions of
the UK Corporate Governance Code specied
for our review. Our additional responsibilities
with respect to the corporate governance
statement as other information are described in
the Reporting on other information section of
this report.
The company has reported compliance against
the 2019 AIC Code of Corporate Governance
(the “Code”) which has been endorsed by the UK
Financial Reporting Council as being consistent
with the UK Corporate Governance Code for the
purposes of meeting the company’s obligations,
as an investment company, under the Listing
Rules of the FCA.
Based on the work undertaken as part of our
audit, we have concluded that each of the
following elements of the corporate governance
statement included within the Strategic report
section and the Governance section of the
Annual Report is materially consistent with the
nancial statements and our knowledge obtained
during the audit, and we have nothing material to
add or draw attention to in relation to:
— The Directors’ conrmation that they have
carried out a robust assessment of the
emerging and principal risks;
— The disclosures in the Annual Report
that describe those principal risks, what
procedures are in place to identify emerging
risks and an explanation of how these are
being managed or mitigated;
— The Directors’ statement in the nancial
statements about whether they considered it
appropriate to adopt the going concern basis
of accounting in preparing them, and their
identication of any material uncertainties
to the company’s ability to continue to do
so over a period of at least twelve months
from the date of approval of the nancial
statements;
— The Directors’ explanation as to their
assessment of the company’s prospects, the
period this assessment covers and why the
period is appropriate; and
— The Directors’ statement as to whether
they have a reasonable expectation that the
company will be able to continue in operation
and meet its liabilities as they fall due over
the period of its assessment, including any
related disclosures drawing attention to any
necessary qualications or assumptions.
Our review of the Directors’ statement regarding
the longer-term viability of the company was
substantially less in scope than an audit and only
consisted of making inquiries and considering the
Directors’ process supporting their statements;
checking that the statements are in alignment
with the relevant provisions of the Code; and
considering whether the statement is consistent
with the nancial statements and our knowledge
and understanding of the company and its
environment obtained in the course of the audit.
In addition, based on the work undertaken as part
of our audit, we have concluded that each of the
following elements of the corporate governance
statement is materially consistent with the
nancial statements and our knowledge obtained
during the audit:
— The Directors’ statement that they consider
the Annual Report, taken as a whole, is fair,
balanced and understandable, and provides
the information necessary for the members
to assess the company position, performance,
business model and strategy;
— The section of the Annual Report that
describes the review of effectiveness of risk
management and internal control systems;
and
— The section of the Annual Report describing
the work of the Audit Committee.
We have nothing to report in respect of our
responsibility to report when the Directors’
statement relating to the company’s compliance
with the Code does not properly disclose a
departure from a relevant provision of the Code
specied under the Listing Rules for review by
the auditors.
Lisa McClure
For and on behalf of
PricewaterhouseCoopersCILLP
Chartered Accountants and Recognized Auditor
Jersey, Channel Islands
24 April 2024
Financial statements
109
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Notes
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Income
Loan note interest realised 3 31,747 31,945
Net loss on nancial assets at fair value through prot or loss 3 (7,396) (18,281)
Net gain/(loss) on derivative nancial instruments 3 468 (781)
Net changes in fair value of nancial assets and nancial liabilities at fair value through prot or loss 24,819 12,883
Other income 3 1,326 1,498
Deposit interest income 165 13
Total income 26,310 14,394
Expenses
Investment management fees 18 (3,448) (3,724)
Operating expenses 4 (1,599) (1,759)
Directors’ remuneration 6 (259) (232)
Total expenses (5,306) (5,715)
Total operating prot before nance costs 21,004 8,679
Finance costs
Finance expenses 7 (2,740) (992)
Total prot and comprehensive income 18,264 7,687
Basic and diluted earnings per share (pence) 10 4.27 1.75
All items in the above statement are derived from continuing operations.
Statement of comprehensive income
For the year ended 31 December 2023
The accompanying notes on pages 114 to 138 form an integral part of these nancial statements.
110
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Statement of nancial position
As at 31 December 2023
Notes
As at
31 December
2023
£’000
As at
31 December
2022
£’000
Assets
Cash and cash equivalents 13 30,936 10,311
Derivative nancial instruments 17.1 107 243
Other receivables and prepayments 12 250 66
Financial assets at fair value through prot or loss 11 366,818 435,071
Total assets 398,111 445,691
Liabilities
Derivative nancial instruments 17.1 (5) (257)
Other payables and accrued expenses 15 (1,361) (1,527)
Revolving credit facilities 14 — (31,907)
Total liabilities (1,366) (33,691)
Net assets 396,745 412,000
Equity
Share capital 16 431,487 437,960
Retained losses (34,742) (25,960)
Total equity 396,745 412,000
Ordinary shares in issue (excluding treasury shares) 16 425,626,059 434,151,059
NAV per ordinary share (pence per share) 93.21 94.90
The nancial statements were approved and authorised for issue by the Board of Directors on 24 April 2024 and signed on its behalf by:
Alex Ohlsson Colin Huelin FCA
Chairman Director
The accompanying notes on pages 114 to 138 form an integral part of these nancial statements.
Financial statements
111
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Statement of changes in equity
For the year ended 31 December 2023
Notes
Share
capital
£’000
Retained
losses
£’000
Total
equity
£’000
Balance as at 1 January 2023 437,960 (25,960) 412,000
Total prot and comprehensive income for the year — 18,264 18,264
Share repurchases 16 (6,473) — (6,473)
Dividends paid 9 — (27,046) (27,046)
Balance as at 31 December 2023 431,487 (34,742) 396,745
Statement of changes in equity
For the year ended 31 December 2022
Notes
Share
capital
£’000
Retained
losses
£’000
Total
equity
£’000
Balance as at 1 January 2022 442,607 (5,881) 436,726
Total prot and comprehensive income for the year — 7,687 7,687
Share repurchases 16 (4,647) — (4,647)
Dividends paid 9 — (27,766) (27,766)
Balance as at 31 December 2022 437,960 (25,960) 412,000
The accompanying notes on pages 114 to 138 form an integral part of these nancial statements.
112
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Statement of cash ows
For the year ended 31 December 2023
Notes
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Cash ows from operating activities
Total operating prot before nance costs 21,004 8,679
Adjustments for:
Net changes in fair value of nancial assets and nancial liabilities at fair value
through prot or loss 3 (24,819) (12,883)
Net settlement of derivative nancial instruments 3 353 (275)
(Decrease)/increase in other payables and accrued expenses (150) 112
(Increase)/decrease in other receivables and prepayments 12 (4) 62
Total (3,616) (4,305)
Loan note interest realised 3 31,747 31,945
Investment in Subsidiary 11 (32,655) (101,985)
Capital repayments from Subsidiary 11 93,512 95,622
Net cash ow generated from operating activities 88,988 21,277
Cash ows from nancing activities
Proceeds from revolving credit facilities 14 16,000 51,550
Repayment of revolving credit facilities 14 (48,050) (39,399)
Share repurchases 16 (6,473) (4,647)
Finance costs paid (2,794) (812)
Dividends paid 9 (27,046) (27,766)
Net cash ow used in nancing activities (68,363) (21,074)
Net increase in cash and cash equivalents 20,625 203
Cash and cash equivalents at beginning of the year 10,311 10,108
Cash and cash equivalents at end of the year 13 30,936 10,311
The accompanying notes on pages 114 to 138 form an integral part of these nancial statements.
Financial statements
113
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Notes to the nancial statements
For the year ended 31 December 2023
1. General information
The Company is a public closed-ended
investment company incorporated on
7September 2015 and domiciled in Jersey,
with registration number 119412. The Company
is governed by the provisions of the Jersey
Company Law and the CIF Law.
The ordinary shares and C shares (when in issue)
of the Company are admitted to the Ofcial
List of the FCA and are traded on the Premium
Segment of the Main Market of the LSE.
The Company makes investments through its
wholly owned Subsidiary by subscribing for the
Secured Loan Notes issued by the Subsidiary.
The Subsidiary subsequently on-lends the funds
to borrowers.
At 31 December 2023, the Company had one wholly
owned Subsidiary, GABI UK (31December2022:
one), incorporated in England and Wales on
23October 2015 (registration number 9838893).
GABI UK has three subsidiaries (31 December
2022: three): GABI Housing (registration number
10497254) incorporated in England and Wales on
25November 2016, GABI GS (registration number
10546087) incorporated in England and Wales on
4 January 2017 and GABI Housing 2 (registration
number 14372988) incorporated in England and
Wales on 23 September 2022. The Company, GABI
UK, GABI Housing, GABI GS and GABI Housing
2 comprise the Group. The registered ofce
address for GABI UK, GABI Housing, GABI Housing
2 and GABI GS is 24 Savile Row, London W1S 2ES.
GABI GS was set up to hold shares as security
for loans issued to underlying borrowers where
required. Its purpose is to isolate any potential
liabilities that arise from holding shares as
security from the Company.
GABI Housing was set up for the sole purpose
of investing in ve underlying properties and
the social income stream derived from these
properties by letting them out to specialist
housing associations.
GABI Housing 2 was set up to invest in a single,
unlevered, operational rental property and
benet from the income stream derived from this
asset.
The Company, through its Subsidiary, seeks
to meet its investment objective through a
diversied portfolio of investments which are
secured against, or comprise, contracted,
predictable, medium to long-term cash ows
and/or physical assets.
The Group’s investments are predominantly in
the form of medium to long-term xed or oating
rate loans which are secured against cash ows
and/or physical assets which are predominantly
UK based.
The Group’s investments are typically unquoted
and include, but are not limited to, senior loans,
subordinated loans, mezzanine loans, bridge
loans and other debt instruments. The Group
may also make limited investments in equities,
equity-related derivative instruments such as
warrants, controlling equity positions (directly or
indirectly) and/or directly in physical assets.
The Group at all times invests and manages its
assets in a manner consistent with the objective
of spreading investment risk.
Where possible, investments are structured to
benet from partial ination and/or interest rate
protection.
2. Signicant accounting policies
The principal accounting policies applied in the
preparation of these nancial statements are set
out below and in the subsequent notes. These
policies, except for the changes discussed in this
note, have been consistently applied throughout
the years they have been presented.
2.1 Basis of preparation
The annual report and nancial statements
for the year ended 31 December 2023 have
been prepared on a going concern basis and in
accordance with IFRS Accounting Standards,
and asapplied in accordance with the Jersey
Company Law.
In accordance with the investment entities
exemption contained in IFRS 10 Consolidated
Financial Statements, the Directors have
determined that the Company continues to
meet the denition of an investment entity
and as a result, the Company is not required
to prepare consolidated nancial statements.
The Company’s investment in its Subsidiary is
measured at fair value and treated as a nancial
asset through prot or loss in the statement of
nancial position (refer to note 2.2(b)).
The Company raises capital through the issue
of ordinary shares and C shares. The net assets
attributable to the C share class, when in issue,
are accounted for and managed by the Company
as a distinct pool of assets, with the Company
ensuring that separate cash accounts are
created and maintained.
Expenses are either specically allocated to an
individual share class or split proportionately
by the NAV of each share class. When in issue,
C shares are classied as a nancial liability.
At31December 2023, there were no C shares
inissue (31 December 2022: none).
New standards, amendments and interpretations
adopted in the year
In the year under review, the Company has
applied amendments to IFRS Accounting
Standards as issued by the IASB. These include
annual improvements to IFRS Accounting
Standards, changes in standards, legislative
and regulatory amendments, changes in
disclosure and presentation requirements. This
incorporated:
— disclosure of accounting policies
(amendments to IAS 1 and IFRS Practice
Statement 2);
— denition of accounting estimates
(amendments to IAS 8);
— deferred tax related to assets and liabilities
arising from a single transaction (amendments
to IAS 12 Income Taxes); and
— IFRS 17 Insurance Contracts.
The adoption of the changes to accounting
standards has had no material impact on these
or prior years’ nancial statements. There
are amendments to IFRS that will apply from
1January2024 as follows:
— non-current liabilities with covenants
(amendments to IAS 1) and classication
of liabilities as current or non-current
(amendments to IAS 1); and
— supplier nance arrangements (amendments
to IAS 7 and IFRS 7).
There is one amendment to IFRS Accounting
Standards applicable from 1January2025:
— lack of exchangeability (amendments to
IAS21).
The Directors do not anticipate the adoption of
these will have a material impact on the nancial
statements.
Other than those detailed above, there are
no new IFRS Accounting Standards or IFRIC
interpretations that have been issued but are not
yet effective that are expected to have a material
impact on the Company’s nancial statements.
114
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Functional and presentation currency
The primary objective of the Company is
to generate returns in Pound Sterling, its
capital-raising currency.
The Company’s performance is evaluated in
Pound Sterling. Therefore, the Directors consider
Pound Sterling as the currency that most
faithfully represents the economic effects of the
underlying transactions, events and conditions.
The nancial statements are presented in Pound
Sterling and all values have been rounded to the
nearest thousand pounds (£’000), except where
otherwise indicated.
Going concern
The nancial statements have been prepared
on a going concern basis. The Directors have
made an assessment of the Company’s ability to
continue as a going concern and are satised
that the Company has adequate resources to
continue in operational existence for a period of
at least twelve months from the date when these
nancial statements were approved.
Liquidity position
At 31 December 2023, the Company held cash
and cash equivalents of £30.9 million. In the
statement of nancial position, the Company had
total current liabilities of £1.4 million, consisting
of other payables and accrued expenses with £nil
amounts drawn on the RCF. The Company’s net
current asset position at 31 December 2023 was
£29.5 million.
The Investment Manager has prepared cash
ow forecasts for two scenarios that assume
the continuation of the Company with its
current investment objective and policy and
a discontinuation scenario with a change to
its existing investment objective and policy
to effect an Orderly Realisation. The latter
scenario assumed that the Company will not be
liquidated in the immediate future and the Board
will seek to implement the Orderly Realisation
in a manner that maximises shareholder value.
Their cash ow forecasts and accompanying
stress tests prepared by the Investment Manager
were reviewed and challenged by the Directors.
The Investment Manager’s stress tests assess
the impact of changes in the valuation of the
underlying investment portfolio and/or income
and consider the impact of plausible downside
scenarios, details of which are given on page 73.
The surplus cash reserves, in addition to
the RCF, enable the Company to meet any
funding requirements and nance future
additional investments that may be considered
in a continuation scenario. The Company is a
closed-ended investment company, with assets
that are not required to be liquidated to meet
day-to-day redemptions.
The conclusion reached by the Board was that
in both a Continuation and Orderly Realisation
scenario, the Company could continue to meet
its liabilities as they fall due. The Directors
are satised that the Company has adequate
nancial resources to continue in operational
existence and meet all liabilities as they fall due
for a period of at least twelve months from the
date on which the annual report and nancial
statements are approved.
Discontinuation and other considerations
On 13 December 2023, the Company announced
that the Board would commence a Strategic
Review to consider how to best deliver value to
shareholders (the “Strategic Review”).
The Board has specically sought shareholders’
views in respect of:
i) the potential continuation of the Company
in its present form in accordance with its
current investment policy delivered by the
Investment Manager, paired with a partial
capital return (“Continuation”);
ii) a wind-down of the Company with an orderly
realisation of its assets (“Orderly Realisation”).
The Orderly Realisation of the Company’s
investments is expected to be in line with the
contractual maturity dates, the majority of
which are expected to be realised within a two
to four year period; and
iii) a potential sale of the entire issued share
capital of the Company and/or its assets
(“Potential Sale”).
Feedback from the Strategic Review noted
that whilst differing views were expressed by
shareholders on the future of the Company,
shareholders representing a majority of the
total voting rights in the Company indicated
a preference for a Orderly Realisation or a
Potential Sale.
Taking market conditions and other factors
into account, the Board has concluded that
shareholder value will be best served by an
Orderly Realisation and return of capital. The
Board will propose the Company’s discontinuation
at the 2024 AGM and if the vote is passed, will
immediately hold an EGM for certain resolutions to
facilitate the Ordinary Realisation.
Discontinuation and Orderly Realisation
Shareholders will be given the opportunity to
vote on the discontinuation of the Company at
the 2024 AGM, which will be presented as an
ordinary resolution requiring a majority of those
voting to vote in favour of discontinuation in
order for the resolution to pass.
The Board intends to recommend that
shareholders vote for discontinuation of the
Company in its present form. If the shareholders
do not vote in favour of discontinuation then
theCompany will continue to operate in its
current form.
In addition, and subject to the approval by
shareholders of the Discontinuation Vote and
the prior approval of the FCA, the Board intends
to convene an EGM to be held immediately after
the 2024 AGM at which it will seek approval
from shareholders to i) amend the Company’s
investment objective and policy to contemplate
the Orderly Realisation and ii) adopt new articles
of association (the “Proposals”).
The Orderly Realisation will not result in a
liquidation of the Company in the immediate
future and the Board will seek to implement the
Orderly Realisation in a manner that maximises
value for shareholders.
The Directors note that the ultimate decision on
the future state of the Company is outside the
control of the Directors and will be known only
after the 2024 AGM and the proposed EGM. The
uncertain future outcome of the 2024 AGM and
the proposed EGM and the impact this has on the
Company’s future state indicates that a material
uncertainty exists that may cast signicant doubt
over the Company’s ability to continue as a going
concern.
The Directors believe, based on discussions
held with shareholders representing a majority
of the total voting rights in the Company, that
the discontinuation of the Company will be
approved by shareholders at the 2024 AGM and
immediately following that, the Proposals will
be approved by shareholders at the proposed
EGM. In addition, the Directors have prepared
cash ow projections which demonstrate that
the Company has adequate nancial resources
to continue in operational existence and meet all
liabilities as they fall due for a period of at least
twelve months from the date of approval of the
nancial statements.
Financial statements
115
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
2. Signicant accounting policies continued
2.1 Basis of preparation continued
Going concern continued
Discontinuation and Orderly Realisation
continued
For these reasons, and based upon the expected
duration of an Orderly Realisation, the Directors
have prepared the nancial statements on a
going concern basis.
Viability assessment
In addition to a going concern statement, the
Directors have undertaken a longer-term
assessment of the Company, the result of which
can be seen in the viability statement on page 73.
2.2 Signicant accounting estimates
andjudgements
The preparation of nancial statements, in
accordance with IFRS Accounting Standards,
requires the Directors to make estimates and
judgements that affect the reported amounts
recognised in the nancial statements. However,
uncertainty about these assumptions and
judgements could result in outcomes that require
a material adjustment to the carrying amount of
the asset or liability in the future. There are no
changes in estimates reported in prior nancial
statements that require disclosure in these
nancial statements.
(a) Critical accounting estimates and
assumptions
Fair value of instruments not quoted in an
activemarket
The Company’s investments are made by
subscribing for the Secured Loan Notes issued
by the Subsidiary. The Subsidiary’s assets consist
of investments held by the Subsidiary, which
represent secured loan facilities issued to the
Project Companies. The Subsidiary’s assets are
not quoted in an active market; therefore, the
fair value is determined using a discounted cash
ow methodology where applicable (excluding
the loans held at net realisable value which are
not valued on a discounted cash ow basis)
adjusted as appropriate for market, credit
and liquidity risk factors (refer to note 17.9 for
further information). This requires assumptions
to be made regarding future cash ows and
the discount rate applied to these cash ows.
The Subsidiary’s investments are valued by an
independent Valuation Agent on a semi-annual
basis. Investments which may be subject to
discount rate changes are valued on a quarterly
basis.
The models used by the Valuation Agent use
observable data to the extent practicable.
However, areas such as credit risk (both own
and counterparty), volatilities and correlations
require estimates to be made. Changes
in assumptions about these factors could
affect the reported fair value of the nancial
instruments.
The determination of what constitutes
‘observable’ requires signicant judgement by
the Company. The Company considers observable
data to be market data that is readily available,
regularly distributed or updated, reliable and
veriable, not proprietary, and provided by
independent sources that are actively involved in
the relevant market.
The investment in the Subsidiary is held at
fair value through prot or loss, with income
distributions and interest payments from the
Subsidiary included as part of the fair value
movement calculation, together with any
unrealised movement in the fair value of the
holding in the Subsidiary.
The value of the investment in the Subsidiary
is based on the aggregate of the NAV of the
Subsidiary and the value of the Secured Loan
Notes issued by the Subsidiary. Refer to note 11
for further details.
Valuation of assets held at net realisable value
The Co-living group loan was valued at the
year end based on the anticipated receipt of
retention balances held in respect of the sale of
the Canary Wharf asset, which has already been
concluded. The expected recovery is contingent
upon the outcome of ongoing planning and tax
considerations, which are currently under review
by the relevant authorities.
One of the football nance loans was valued
at the year end based on the guaranteed
portion of the loan, which is held at par, with the
unguaranteed portion written down to £nil due
to uncertainty around repayments. These are
dependent upon the football club being sold in
the future and there is uncertainty regarding the
quantum of sale proceeds.
The valuation of one of the multi-use community
facility loans held at net realisable value was
based on an estimated recovery position on the
sale of the asset. Further information is given on
page 21 and note 17.9.
(b) Critical judgements
Assessment as an investment entity
The Directors have concluded that the
Company continues to meet the denition of
aninvestmententity.
Entities that meet the denition of an investment
entity within IFRS 10 Consolidated Financial
Statements are required to measure their
subsidiaries at fair value through prot or loss
rather than consolidate.
The criteria which dene an investment entity are
as follows:
— an entity that obtains funds from one or more
investors with the purpose of providing those
investors with investment services;
— an entity that commits to its investors that its
business purpose is to invest funds solely for
returns from capital appreciation, investment
income or both; and
— an entity that measures and evaluates
the performance of substantially all of its
investments on a fair value basis.
The Directors have concluded that the Company
continues to meet the characteristics of an
investment entity in that it:
— raises funds from investors through the issue
of equity, has more than one investor and its
investors are not related parties other than
those disclosed in note 18;
— invests in a portfolio of investments held by
the Subsidiary for the purpose of generating
risk-adjusted returns through regular
distributions and capital appreciation; and
— the Company’s investments are held at
fair value through prot or loss with the
performance of its portfolio evaluated on a
fair value basis.
Accordingly, the Company’s Subsidiary is not
consolidated, but rather the investment in the
Subsidiary is accounted for at fair value through
prot or loss. The value of the investment in the
Subsidiary is based on the aggregate of the NAV
of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary.
116
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
(c) Segmental information
The Directors view the operations of the Company as one operating segment, being the investment portfolio of asset backed loans held through the
Subsidiary, which is a registered UK company. All signicant operating decisions made by the Board, as the chief operating decision maker, are based upon
analysis of the Subsidiary’s investments as one segment. Thenancial results from this segment are equivalent to the nancial results of the Company as a
whole, which are evaluated regularly by the Directors.
Signicant shareholders are disclosed in the Directors’ report on page 101.
3. Operating income
The table below analyses the operating income derived from the Company’s nancial assets at fair value through prot or loss:
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Loan note interest realised 31,747 31,945
Unrealised loss on nancial assets at fair value through prot or loss:
Debt – Secured Loan Notes up to £1,000,000,000 (4,257) (17,700)
Equity – representing one ordinary share in the Subsidiary (48) 745
Realised loss on nancial assets at fair value through prot or loss:
Debt – Secured Loan Notes up to £1,000,000,000 (3,091)
1
(1,326)
Net loss on nancial assets at fair value through prot or loss (7,396) (18,281)
Gain/(loss) on derivative nancial instruments:
Unrealised gain/(loss) on forward foreign exchange contracts 115 (506)
Realised gain on forward foreign exchange contracts 680 795
Realised loss on forward foreign exchange contracts (327) (1,070)
Net gain/(loss) on derivative nancial instruments 468 (781)
Net changes in fair value of nancial assets and nancial liabilities at fair value through prot or loss 24,819 12,883
The table below analyses the other income earned by the Company by type:
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Arrangement fee income 109 258
Commitment fee income — 480
Early repayment fee income 1,177 760
Sundry income 40 —
Total 1,326 1,498
1. Comprises a write-down in respect of the Co-living group loan. The Company has recognised historic losses of £35.1 million in total in respect of the Co-living group loan.
Financial statements
117
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
3. Operating income continued
Accounting policy
Interest income and interest expense other than interest received on nancial assets held at fair value through prot or loss are recognised on an
accruals basis in the statement of comprehensive income.
Net movements in fair value of nancial assets and nancial liabilities at fair value through prot or loss includes changes in the fair value of the
investment in the Subsidiary held at fair value through prot or loss, loan note interest realised, principal indexation applied to certain loans and net gain
or loss on forward foreign exchange contracts.
Principal indexation is applied to certain loan notes where applicable. The indexation is a contractually allowable inationary adjustment to loan principal
calculated where permitted by a predened mechanism in a loan agreement. The effect of the adjustment is to increase or decrease the fair value of
those loan notes in line with the indexation factor which takes account of the rate of ination against a stipulated ination threshold of each relevant
loan. Thefair values of those loan notes are subsequently adjusted accordingly.
Arrangement fee income comprises fees relating to the issue and set up of Secured Loan Notes. The Investment Manager, at its discretion, is entitled
to an arrangement fee of up to 1% of the value of each investment made by the Group. The Investment Manager generally expects the costs of any such
fee to be covered by the borrowers, and not the Company. To the extent any arrangement fee negotiated by the Investment Manager with a borrower
exceeds 1%, the benet of any such excess is paid to the Company. The arrangement fee income is recognised in the nancial statements when
contractual provisions are met and the amounts become due.
Commitment fees are accounted for on an accruals basis and are paid by the borrowers.
Early repayment fee income is income related to the redemption of loans before maturity and is recognised in the nancial statements when contractual
provisions are met and the amounts become due.
The Company holds derivative nancial instruments comprising forward foreign exchange contracts to hedge its exposure to movements in foreign
currency exchange rates on loans denominated in currency other than Pound Sterling. It is not the Company’s policy to trade in derivative nancial
instruments.
Forward foreign exchange contracts are stated at fair value, being the difference between the agreed price of selling or buying the nancial instrument
on a future date and the price quoted for selling or buying the same or similar instruments on the statement of nancial position date. The Company
does not apply hedge accounting and consequently all gains or losses in fair value are recognised in the statement of comprehensive income.
4. Operating expenses
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Corporate administration and Depositary fees 610 590
Registrar fees 46 39
Audit fees 170 131
Legal and professional fees 157 67
Valuation Agent fees 139 186
Other 477 746
Total 1,599 1,759
Key service providers other than the Investment Manager (refer to note 18 for disclosures of transactions with the Investment Manager).
Administrator and Company Secretary
The Company has appointed Apex Financial Services (Alternative Funds) Limited as Administrator and Company Secretary. Fund accounting, administration
and company secretarial services are provided to the Company pursuant to an agreement dated 28 September 2015. The Administrator outsources the
provision of client accounting services to Apex Fund Services LLP (previously Link Alternative Fund Administrators Limited). All Directors have access to
the Company Secretary, who provides guidance to the Board, through the Chairman, on governance and administrative matters. The fee for the provision
of administration and company secretarial services during the year was £489,000 (31 December 2022: £462,000) of which £108,000 remains payable at year
end (31 December 2022: £112,000).
118
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Depositary
Depositary services are provided to the Company by Apex Financial Services (Corporate) Limited pursuant to an agreement dated 28 September 2015.
The fee for the provision of these services during the year was £121,000 (31 December 2022: £128,000) of which £30,000 remains payable at year end
(31December 2022: £31,000).
Accounting policy
Operating expenses and investment management fees in the statement of comprehensive income are recognised on an accruals basis.
5. Auditor’s remuneration
The following table summarises the remuneration paid to the Auditor for audit and non-audit related services:
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Audit fees
Annual audit of the Company 170 131
Audit-related services
Review of the half-yearly report 36 36
Total 206 167
6. Directors’ remuneration
The Directors of the Company were remunerated as follows:
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Alex Ohlsson 68 60
Colin Huelin FCA 64 55
Joanna Dentskevich 64 60
Marykay Fuller 58 55
Total 254 230
Directors’ expenses 5 2
Total 259 232
Full details of the Directors’ remuneration policy can be found in the Directors’ remuneration report on pages 96 to 99.
7. Finance expenses
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Arrangement fees relating to the RCF 247 224
Commitment fees relating to the RCF 111 297
Interest expense relating to the RCF 2,382 471
Total 2,740 992
Accounting policy
Finance expenses in the statement of comprehensive income comprise loan arrangement and commitment fees which are accounted for on an accruals
basis, along with interest accrued on the RCF (refer to note 14) incurred in connection with the borrowing of funds. Arrangement fees are amortised
over the life of the RCF.
Financial statements
119
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
8. Taxation
Prots arising in the Company for the year ended 31 December 2023 are subject to tax at the standard rate of 0% (31 December 2022: 0%) in accordance
with the Income Tax (Jersey) Law 1961, as amended.
9. Dividends
Quarter ended Dividend
Pence
per share
Year ended
31 December
2023
£’000
Year ended
31 December
2022
£’000
Current year dividends
31 December 2023 2023 fourth interim dividend 1.58125 — —
30 September 2023 2023 third interim dividend 1.58125 6,731 —
30 June 2023 2023 second interim dividend 1.58125 6,730 —
31 March 2023 2023 rst interim dividend 1.58125 6,765 —
Total 6.32500 20,226 —
Prior year dividends
31 December 2022 2022 fourth interim dividend 1.58125 6,820 —
1
30 September 2022 2022 third interim dividend 1.58125 — 6,929
30 June 2022 2022 second interim dividend 1.58125 — 6,955
31 March 2022 2022 rst interim dividend 1.58125 — 6,955
Total 6.32500 6,820 20,839
31 December 2021 2021 fourth interim dividend 1.57500 — 6,927
Dividends in statement of changes in equity and cash ows 27,046 27,766
On 8 February 2024, the Company announced a fourth interim dividend of 1.58125 pence per share amounting to £6.7 million which was paid on
15March2024 to ordinary shareholders on the register at 16 February 2024.
Accounting policy
In accordance with the Company’s Articles, in respect of the ordinary shares, the Company will distribute the income it receives to the fullest extent
that is deemed appropriate by the Directors. Dividends due to the Company’s shareholders are recognised as a liability in the period in which they are
paid or approved by the Directors and are reected in the statement of changes in equity. Dividends declared and approved by the Company after the
statement of nancial position date have not been recognised as a liability of the Company at the statement of nancial position date.
The Company pays dividends on a quarterly basis with dividends typically declared in January, April, July and October and paid in or around February,
May, August and November in each nancial year.
10. Earnings per share
Basic EPS is calculated by dividing prot for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary
shares in issue during the year, excluding shares held in treasury. Diluted EPS is calculated by dividing the prot attributable to ordinary shareholders by
the diluted weighted average number of ordinary shares, excluding shares held in treasury.
Earnings
£’000
Weighted average
number of
ordinary shares
Pence
per share
Year ended 31 December 2023
Basic EPS 18,264 427,242,221 4.27
Diluted EPS 18,264 427,242,221 4.27
Adjusted EPS
2
30,025 427,242,221 7.02
1. The fourth interim dividend was declared after the year end and is therefore not accrued for as a provision in the nancial statements.
2. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
120
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Earnings
£’000
Weighted average
number of
ordinary shares
Pence
per share
Year ended 31 December 2022
Basic EPS 7,687 439,291,385 1.75
Diluted EPS 7,687 439,291,385 1.75
Adjusted EPS
1
28,900 439,291,385 6.58
11. Financial assets at fair value through prot or loss: investment in Subsidiary
The Company’s nancial assets at fair value through prot or loss comprise its investment in the Subsidiary, which represents amounts advanced to nance
the Group’s investment portfolio in the form of Secured Loan Notes issued by the Subsidiary to the Company and equity. The Company’s investment in the
Subsidiary at 31 December 2023 comprised:
Debt – Secured Loan Notes up to £1,000,000,000
2023
£’000
2022
£’000
Opening balance 430,984 443,647
Investment in Subsidiary 32,655 101,985
Capital repayments from Subsidiary (93,512) (95,622)
Realised loss on nancial assets at fair value through prot or loss (3,091)
2
(1,326)
Unrealised loss on nancial assets and liabilities at fair value through prot or loss:
Unrealised valuation loss (8,671) (20,370)
Unrealised foreign exchange (loss)/gain (317) 1,503
Other unrealised movements on investments
3
4,731 1,167
Total unrealised loss on investments at fair value through prot or loss (4,257) (17,700)
Total 362,779 430,984
Equity – representing one ordinary share in the Subsidiary
31 December
2023
£’000
31 December
2022
£’000
Opening balance 4,087 3,342
Unrealised (loss)/gain on investment at fair value through prot or loss (48) 745
Total 4,039 4,087
Financial assets at fair value through prot or loss 366,818 435,071
The above represents a 100% interest in the Subsidiary at year end 31 December 2023 (31 December 2022: 100%).
Secured Loan Notes
The Subsidiary has issued a loan note instrument to the Company for a programme of up to £1 billion variable funding notes limited to the cash available by
the Company. Each series of loan notes issued has a maximum nominal amount, which is xed at the date of issue, as well as a base amount and a subscribed
amount.
Accounting policy
The Company classies its investment in the Subsidiary as nancial assets at fair value through prot or loss in accordance with IFRS 9 Financial
Instruments as set out below.
1. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
2. Comprises a write-down in respect of the Co-living group loan. The Company has recognised historic losses of £35.1 million in total in respect of the Co-living group loan.
3. Attributable to the timing of the debt service payments and principal indexation of £0.4 million (31 December 2022: £1.4 million) applied to certain loans.
Financial statements
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
11. Financial assets at fair value through prot or loss: investment in Subsidiary continued
Financial assets at fair value through prot or loss
The category which includes nancial assets at fair value through prot or loss consists of nancial instruments that have been designated at fair value
through prot or loss upon initial recognition. These nancial assets are designated on the basis that they are part of a group of nancial assets which are
managed and have their performance evaluated on a fair value basis, in accordance with the risk management and investment strategies of the Company.
Upon initial recognition, the Company designates the investment in the Subsidiary as part of ‘nancial assets at fair value through prot or loss’.
Theinvestment in the Subsidiary is included initially at fair value, which is taken to be its cost (excluding expenses incidental to the acquisition which are
written off in the statement of comprehensive income).
All nancial assets for which fair value is measured or disclosed in the nancial statements are categorised within the fair value hierarchy.
Financial information about the nancial assets of the Company is provided by the Investment Manager to the Directors with the valuation of the portfolio
being carried out by the independent Valuation Agent.
The Company recognises a nancial asset when, and only when, it becomes party to the contractual provisions of the instrument. Purchases or sales of
nancial assets that require delivery of assets within the timeframe generally established by regulation or convention in the marketplace are recognised
onthe trade date, i.e. the date that the Company commits to purchase or sell the asset.
A nancial asset (or, where applicable, part of a nancial asset or part of a group of similar nancial assets) is derecognised when:
— the rights to receive cash ows from the asset have expired; or
— the Company has transferred its rights to receive cash ows from the asset or has assumed an obligation to pay the received cash ows in full without
material delay to a third party under a pass-through arrangement; and
— either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset but has transferred control of the asset.
When the Company transfers its rights to receive cash ows from an asset or has entered into a pass-through arrangement, and has neither transferred
nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s
continuing involvement in the asset.
After initial measurement, the Company measures nancial instruments classied at fair value through prot or loss at fair value. Subsequent changes in
the fair value of nancial instruments are recorded in the statement of comprehensive income.
Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. For all other
nancial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques used by
the independent Valuation Agent include using recent arm’s length market transactions, referenced to appropriate current market data, and discounted
cash ow analysis, at all times making as much use of available and supportable market data as possible.
An analysis of fair value of nancial instruments and further details as to how they are measured is provided in note 17.9.
12. Other receivables and prepayments
31 December
2023
£’000
31 December
2022
£’000
Other income debtors — 6
Prepayments 70 60
Unamortised arrangement fee 180 —
Total 250 66
The unamortised arrangement fee has been recognised in other receivables and prepayments at year end due to the RCF being repaid in full during the
current year. In the prior year, the unamortised arrangement fee was net against the outstanding RCF, see note 14.
Accounting policy
Other receivables and prepayments are recognised and carried at the lower of their original invoiced value and recoverable amount or, where the time
value of money is material, at amortised cost. The Company recognises a loss allowance for expected credit loss on other receivables where necessary.
122
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13. Cash and cash equivalents
31 December
2023
£’000
31 December
2022
£’000
Cash and cash equivalents 30,936 10,311
Total 30,936 10,311
Accounting policy
Cash comprises cash in hand and demand deposits. Cash equivalents are short term with original maturities of three months or less and highly liquid
investments, that are readily convertible to known amounts of cash and which are subject to an insignicant risk of changes in value.
14. Revolving credit facilities
31 December
2023
£’000
31 December
2022
£’000
Opening balance 32,050 19,899
Proceeds from amounts drawn on the RCF 16,000 51,550
Repayment of amounts drawn on the RCF (48,050) (39,399)
RCF drawn at the year end — 32,050
Loan arrangement fees unamortised — (143)
Total — 31,907
Any amounts drawn under the RCF are to be used in, or towards, the making of investments (including a reduction of available commitment as an alternative
to cash cover for entering into forward foreign exchange contracts) in accordance with the Company’s investment policy.
On 7 July 2023, the Company extended its £50.0 million RCF with RBSI by twelve months on the same terms, extending the maturity date to August 2024.
Interest on amounts drawn under the RCF is charged at SONIA (plus a credit adjustment spread) plus 2.10% per annum. A commitment fee is payable on
undrawn amounts at a rate of 0.84% per annum.
The total costs incurred to extend the facility to August 2024 were £286,000, of which £275,000 related to the arrangement fees and £11,000 is associated
legal fees. The legal fees are included as arrangement fees for reporting purposes.
A total of £247,000 (31 December 2022: £224,000) of costs were amortised as loan arrangement fees during the year and charged through the statement
of comprehensive income, refer to note 7.
The unamortised arrangement fee was net against the outstanding RCF balance in the prior year end. However, due to the RCF being repaid in full during
the current year, the unamortised arrangement fee has been recognised in other receivables and prepayments, see note 12.
The RCF with RBSI is secured against the investment in the Subsidiary.
No drawdowns were repayable at 31 December 2023 (31 December 2022: £32.1 million).
The total amount available for drawdown on the RCF is £50.0 million. At the year end a sum of £0.8 million (31 December 2022: £2.3 million) had been
drawn down on the RCF as an alternative to cash cover for the six open forward foreign exchange contracts. This has restricted the amount available for
drawdown on the RCF to £49.2 million at 31December 2023.
The RCF includes covenants which are measured in accordance with the facility agreement. The covenants are as follows: loan to NAV value of less
than 15%, loan-to-value of eligible assets of less than 25% and an interest cover ratio of six times. During the period of utilisation, the Company was in
compliance with all loan covenants in the RCF agreement.
The RCF has a maturity of August 2024. Subject to the outcome of the Discontinuation Vote in May 2024, the Company may wish to seek renewal of this
facility.
Financial statements
123
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Notes to the nancial statements continued
For the year ended 31 December 2023
14. Revolving credit facilities continued
Leverage
For the purposes of the UK AIFM Regime, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use
of derivatives. It is expressed as a ratio between the Company’s exposure and its NAV and is calculated under the gross and commitment methods, in
accordance with the UK AIFM Regime.
The Company is required to state its maximum and actual leverage levels, calculated as prescribed by the UK AIFM Regime, at 31 December 2023; gures
areas follows:
Leverage exposure
Maximum
limit
31 December
2023
Actual
exposure
31 December
2022
Actual
exposure
Gross method 1.25 0.96 1.11
Commitment method 1.25 1.00 1.08
The leverage gures above represent leverage calculated under the UK AIFM Regime methodology as follows:
Leverage exposure
31 December
2023
Gross
£’000
31 December
2023
Commitment
£’000
31 December
2022
Gross
£’000
31 December
2022
Commitment
£’000
Investments at fair value through prot or loss 366,818 366,818 435,071 435,071
Cash and cash equivalents — 30,936 — 10,311
Derivative nancial instruments
1
12,130 — 20,656 —
Total exposure under the UK AIFM Regime 378,948 397,754 455,727 445,382
Net assets 396,745 396,745 412,000 412,000
Leverage ratio 0.96 1.00 1.11 1.08
The Company’s leverage limit under the UK AIFM Regime is 1.25, which equates to a gearing limit of 25% of NAV. The Company has maintained signicant
headroom against the limit throughout the year.
15. Other payables and accrued expenses
31 December
2023
£’000
31 December
2022
£’000
Accruals 473 540
Loan commitment fee accrued 56 58
Loan interest accrued — 15
Investment management fees 832 914
Total 1,361 1,527
Accounting policy
Other payables and accrued expenses are recognised initially at fair value and subsequently stated at amortised cost using the effective interest
method where appropriate.
1. Equivalent position in the underlying assets of derivative nancial instruments using the conversion methodologies set out in the UK AIFM regime.
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Annual report and nancial statements 2023
16. Authorised and issued share capital
31 December 2023 31 December 2022
Share capital
Number
of shares £’000
Number
of shares £’000
Ordinary shares issued at no par value and fully paid
Shares in issue at beginning of the year 442,033,518 444,414 442,033,518 444,414
Shares issued in the year — — — —
Total shares in issue 442,033,518 444,414 442,033,518 444,414
Treasury shares
Shares repurchased and held in treasury at beginning of the year (7,882,459) (6,454) (2,200,000) (1,807)
Shares repurchased in the year (8,525,000) (6,473) (5,682,459) (4,647)
Total shares repurchased and held in treasury (16,407,459) (12,927) (7,882,459) (6,454)
Total ordinary share capital excluding treasury shares 425,626,059 431,487 434,151,059 437,960
The Company’s authorised share capital is represented by an unlimited number of no par value ordinary shares. At 31 December 2023, the Company’s issued
share capital comprised 442,033,518 ordinary shares (31 December 2022: 442,033,518), 16,407,459 of which are held in treasury (31December2022:7,882,459).
The ordinary shares carry the right to dividends out of the prots available for distribution as determined by the Board. Each holder of an ordinary share is
entitled to attend meetings of shareholders and, on a poll, to one vote for each share held.
The Company may issue C shares which, when in issue, are classied as a nancial liability (refer to note 2.1). There were no C shares in issue at 31December
2023 (31 December 2022: none).
Accounting policy
Upon issuance of equity shares, the consideration received is included in equity.
Transaction costs incurred by the Company in issuing, acquiring or reselling its own equity instruments are accounted for as a deduction from equity to
the extent that they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.
No gain or loss is recognised in the statement of comprehensive income in respect of the purchase, sale, issuance or cancellation of the Company’s own
equity instruments.
17. Financial instruments
The table below sets out the carrying amounts of the Company’s nancial assets and nancial liabilities into categories of nancial instruments.
31 December
2023
£’000
31 December
2022
£’000
Financial assets
Cash and cash equivalents 30,936 10,311
Other receivables — 6
Total nancial assets at amortised cost 30,936 10,317
Derivative nancial instruments 107 243
Financial assets at fair value through prot or loss 366,818 435,071
Total nancial assets at fair value through prot or loss 366,925 435,314
Total nancial assets 397,861 445,631
Financial liabilities
Derivative nancial instruments (5) (257)
Other payables and accrued expenses (1,361) (1,527)
Revolving credit facilities — (31,907)
Financial liabilities at amortised cost
1
(1,366) (33,691)
Total nancial liabilities (1,366) (33,691)
1. The carrying value of the nancial assets and liabilities stated at amortised cost approximates their fair value.
Financial statements
125
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
17. Financial instruments continued
17.1 Derivative nancial instruments
Derivative nancial assets and liabilities comprise forward foreign exchange contracts for the purpose of hedging foreign currency exposure of the
Company to Euro and US Dollar denominated loan investments made by the Subsidiary. The investments represent 3.3% of the portfolio by value at the year
end (31 December 2022: 2.4%). The Company intends to utilise the forward foreign exchange contracts on a rolling basis, for the term of the investments.
The table below sets out the forward foreign exchange contracts held by the Company at year end:
Principal
amount
Hedged
amount
Fair value £’000
31 December 2023 Maturity
Financial
assets
Financial
liabilities
Contract EUR/GBP 4 January 2024 (£4,883,097) €5,620,445 — (2)
Contract EUR/GBP 4 January 2024 (£1,980,344) €2,279,376 — (1)
Contract EUR/GBP 4 January 2024 (£1,943,495) €2,236,963 — (1)
Contract EUR/GBP 22 March 2024 (£158,702) €182,666 — —
Contract EUR/GBP 4 October 2024 (£1,141,853) €1,300,000 — (1)
Total EUR/GBP (£10,107,491) €11,619,450 — (5)
Contract USD/GBP 4 January 2024 (£2,167,111) $2,626,105 107 —
Total USD/GBP (£2,167,111) $2,626,105 107 —
Total (£12,274,602) 107 (5)
31 December 2022 Maturity
Principal
amount
Hedged
amount
Fair value £’000
Financial
assets
Financial
liabilities
Contract EUR/GBP 4 January 2023 (£2,192,406) €2,500,000 — (26)
Contract EUR/GBP 4 January 2023 (£2,290,922) €2,610,506 — (25)
Contract EUR/GBP 8 March 2023 (£4,892,017) €5,717,300 — (193)
Contract GBP/EUR 8 March 2023 £5,027,081 (€5,717,300) 59 —
Contract EUR/GBP 22 March 2023 (£1,236,309) €1,400,614 — (10)
Contract EUR/GBP 3 October 2023 (£2,234,894) €2,495,706 — (3)
Total EUR/GBP (£7,819,467) €9,006,826 59 (257)
Contract USD/GBP 4 January 2023 (£2,724,746) $3,058,800 184 —
Total USD/GBP (£2,724,746) $3,058,800 184 —
Total (£10,544,213) 243 (257)
Information on the forward foreign exchange contracts executed post year end can be found in note 19.
Accounting policy
Recognition of derivative nancial assets and liabilities takes place when the hedging contracts are entered into. They are initially recognised and
subsequently measured at fair value; transaction costs, where applicable, are included directly in nance costs. The Company does not apply hedge
accounting and consequently all gains or losses are recognised in the statement of comprehensive income in the net change in fair value of nancial
assets and nancial liabilities through prot or loss.
17.2 Capital management
The Company’s capital is represented by share capital comprising issued ordinary share capital and its credit facilities, as detailed in notes 16 and 14
respectively.
The Company may borrow up to 25% of its NAV at any such time borrowings are drawn down. Refer to note 14 for further information.
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Annual report and nancial statements 2023
17.3 Financial risk management objectives
The Company has an investment policy and strategy that sets out the Company’s overall investment strategy and general risk management philosophy
and has established processes to monitor and control these in a timely and accurate manner. These guidelines are subject to regular operational reviews
undertaken by the Investment Manager to ensure the Company’s policies are adhered to as it is the Investment Manager’s duty to identify and assist with
the management of risk. The Investment Manager reports regularly to the Directors who have ultimate responsibility for the overall risk management
approach.
The Directors and the Investment Manager ensure that all investment activity is performed in accordance with investment guidelines. The Company’s
investment activities expose it to various types of risks that are associated with the nancial instruments and markets in which it invests. Risk is inherent
to the Company’s activities and it is managed through a process of ongoing identication, measurement and monitoring. The nancial risks to which the
Company is exposed include market risk (which includes interest rate risk), credit risk, currency risk and liquidity risk.
As explained in notes 11 and 17, the Company’s nancial assets and liabilities at fair value through prot or loss comprise the investment in the Subsidiary
and derivatives used for the purpose of hedging foreign currency exposure. The Subsidiary is a holding vehicle that exists solely to hold the Company’s
investments and, therefore, exposure to market risk, interest rate risk, credit risk, liquidity risk and credit and counterparty risk are highly dependent on
the performance of the Subsidiary’s investments.
Geopolitical and market uncertainties
The Board and the Investment Manager have considered the likely impacts of international and economic uncertainties on the Company, its operations
and the investment portfolio. These include, but are not limited to, the war in Ukraine, the ongoing Israel-Hamas conict, economic instability in the UK
as a result of high ination, interest rate increases and the resulting cost-of-living crisis. The Company is predominantly invested in the UK and has no
investments in conict areas. Equally, no borrowers have been subject to sanctions imposed due to these conicts.
However, high energy prices continue to impact all sectors and are an area of monitoring for the Investment Manager.
Climate risk
The Investment Manager has carried out a climate risk assessment for each underlying portfolio asset to assess the actual and potential impacts of
climate-related risks and opportunities across the portfolio. The analysis considered both physical and transition risks for each asset. The data collated
was based upon publicly available data on ood risk and EPC ratings, supplemented by inputs from the Investment Manager’s portfolio management team
and its investment management team. Based on the climate risk analysis undertaken, the Investment Manager does not currently propose to make any
changes to nancial forecasts due to climate risk.
17.4 Market risk
The value of the investment in the Subsidiary is based on the aggregate of the NAV of the Subsidiary and the value of the Secured Loan Notes issued by the
Subsidiary to the Company. The key driver of the Subsidiary’s NAV is the valuation of its portfolio of secured loan facilities issued to the Project Companies.
There is a risk that market movements in interest rates, credit markets, exchange rates and observable yields may decrease or increase the value of
the Subsidiary’s assets without regard to the assets’ underlying performance. The Subsidiary’s portfolio of assets is held at fair value, and valued on a
semi-annual basis by the independent Valuation Agent. Investments subject to discount rate changes are valued on a quarterly basis. The Company’s
assets are stable with predictable cash ows and are not exchange traded.
In assessing the expected future cash ows from each investment, the independent Valuation Agent considers the movements in comparable credit
markets and publicly available information around each project.
The valuation principles used are based on a discounted cash ow methodology (excluding the loans held at net realisable value); refer to note 17.9 for
further information. A fair value for each asset acquired by the Group is calculated by applying a relevant market discount rate to the contractual cash ow
expected to arise from each asset.
The independent Valuation Agent determines the discount rate that it believes the market would reasonably apply to each underlying investment taking,
inter alia, into account the following signicant inputs:
— Pound Sterling interest rates;
— movements of comparable credit markets; and
— observable yield on other comparable instruments.
In addition, the following are also considered as part of the overall valuation process:
— market activity and investor sentiment; and
— changes to the economic, legal, taxation or regulatory environment.
Financial statements
127
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
17. Financial instruments continued
17.4 Market risk continued
The independent Valuation Agent exercises its judgement in assessing the expected future cash ows from each investment. Given that the investments
are generally xed income debt instruments (in some cases with elements of ination and/or interest rate protection) or other investments with a similar
economic effect, the focus of the independent Valuation Agent is assessing the likelihood of any interruptions to the debt service payments, in light of the
operational performance of the underlying asset.
The valuations are reviewed by the Investment Manager and the Directors and the subsequent NAV is reviewed by the Investment Manager and the
Directors on a quarterly basis.
The table below shows how changes in discount rates affect changes in the valuation of nancial assets through prot or loss. The range of discount rate
changes has been determined with reference to historic discount rate changes made by the independent Valuation Agent. In view of the change in the
average weighted discount rate of 2.1% during the year, the Audit committee considered it was appropriate to increase the sensitivity range to +/- 2.00%.
Loans with shorter durations are not sensitive to discount rates.
31 December 2023
Change in discount rates (2.00%) (1.00%) 0.00% 1.00% 2.00%
Valuation of nancial assets at fair value through
prot or loss (£’000)
1,2
390,270 377,440 366,818 357,041 346,813
Change in value of nancial assets at fair value (£’000) 23,452 10,622 — (9,777) (20,005)
31 December 2022
Change in discount rates (1.00%) (0.50%) 0.00% 0.50% 1.00%
Valuation of nancial assets at fair value through
prot or loss (£’000)
1,2
449,822 442,280 435,071 428,171 421,559
Change in value of nancial assets at fair value (£’000) 14,751 7,209 — (6,900) (13,512)
1. Includes the fair value of the loans held at net realisable value which are not valued on a discounted cash ow basis; see note 17.9 for further details.
2. Including the NAV of the Subsidiary.
17.5 Interest rate risk
Interest rate risk arises from the effects of uctuations in the prevailing level of market interest rates on the fair value of nancial assets, future cash
ows and borrowings.
Interest rate risk has the following effect:
Fair value of nancial assets
Interest rates are one of the factors which the independent Valuation Agent takes into account when valuing the nancial assets. Interest rate risk is
incorporated by the independent Valuation Agent into the discount rate applied to the nancial assets at fair value through prot or loss. Discount rate
sensitivity analysis is disclosed in note 17.4.
Future cash ows
The Company primarily invests, via its Subsidiary, in a diversied portfolio of investments which are secured against, or comprise, contracted, predictable
medium to long-term cash ows and/or physical assets. The Group’s investments will predominantly take the form of medium to long-term xed or oating
rate loans which are secured against cash ows and/or physical assets which are predominantly UK based.
Interest rate hedging may be carried out to provide protection against falling interest rates in relation to assets that do not have a minimum xed rate of
return acceptable to the Company in line with its investment policy and strategy. The Company has not entered into an interest rate hedging agreement
during the year, or in the prior year.
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Borrowings
During the year, the Company made use of its RCF, which was used to make investments in accordance with the Company’s investment policy. Details of the
RCF are given in note 14.
Any potential nancial impact of movements in interest rates on the cost of borrowings to the Company is mitigated by the short-term nature of such
borrowings.
The drawn amount under the RCF at 31 December 2023 was £nil (31 December 2022: £32.1 million).
The following table shows an estimate of the sensitivity of the drawn amount under the RCF to interest rate changes of 100 and 200 basis points in atwelve
month period, with all other variables being held constant. Given there was no RCF drawn down at 31 December 2023, only the comparative gures have
been shown below.
31 December 2022
Change in interest rates 2.0% 1.0% 0% (1.0%) (2.0%)
Value of interest expense (£’000) 2,445 2,092 1,772 1,451 1,099
Changes in interest expense (£’000) 673 321 — (321) (673)
Other nancial assets and liabilities
Bank deposits, payables and accrued expenses are exposed to and affected by uctuations in interest rates. However, the impact of interest rate risk on
these assets and liabilities is not considered material.
17.6 Credit risk
Credit risk is the risk that the counterparty to a nancial instrument will fail to discharge an obligation or commitment it has entered into with the
Company. Assets classied at fair value through prot or loss do not have a published credit rating; however, the Investment Manager monitors the
nancial position and performance of the Group’s borrowers on a regular basis to ensure credit risk is appropriately managed.
The Company is exposed to differing levels of credit risk across its assets. Per the statement of nancial position, the Company’s total exposure to credit
risk is £398.1 million (31 December 2022: £445.7 million) represented through its investments, receivables, nancial derivatives and cash.
Total cash reserves at year end were £30.9 million (31 December 2022: £10.3 million) and £67.1 million at the date of this annual report. The cash is held at a
number of banks that carry a minimum rating of A-2, P-2 or F2 from Standard and Poor’s, Moody’s and Fitch, respectively, to spread credit risk.
The Group’s nancial assets at fair value through prot or loss comprise debt and equity securities in the Subsidiary and, therefore, the credit risk of the
Company’s investments is highly dependent on the performance of the Subsidiary’s investment portfolio, which is valued on a semi-annual basis by the
independent Valuation Agent. Investments which may be subject to discount rate changes are valued on a quarterly basis. The independent Valuation
Agent takes into account the credit risk associated with these investments in their valuation by considering information provided by the Investment
Manager on the performance of each underlying loan, including either early or late payments of capital and interest, varying relevant loan facility covenants
on the nancial, business (commercial) and legal position of each borrower and the expected realisation of assets, disposal of equity interests and/or
renancing of the loan.
The Company’s investments are illiquid instruments and have contractual cash ows which are re-assessed by the Investment Manager with each borrower
for expected recoverability. After an investment is made, the forecasted cash ows are regularly updated by the Investment Manager with information
provided by the borrower for review by the independent Valuation Agent in order to monitor ongoing nancial performance.
Any changes in the fair value of the investment portfolio are recognised through prot or loss. Such movements will incorporate a change to fair value
resulting from the receipt or expected non-receipt of interest or principal payments, timing changes of cash ows, and the date of valuation and changes
to the discount rate. Discount rate sensitivity analysis is disclosed in note 17.4.
Financial statements
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Notes to the nancial statements continued
For the year ended 31 December 2023
17. Financial instruments continued
17.6 Credit risk continued
Credit risk assessment
Credit risk is considered by the independent Valuation Agent during the origination process and during the ongoing fair valuation process. Depending on
the nature of the underlying investments, in addition to payment performance, and compliance with facility covenants, residual credit risk is considered by
the independent Valuation Agent with reference to a number of factors for each loan including, but not limited to:
a) Asset and borrower business risks: ultimately these factors will impact the valuation of the secured assets and/or the borrower’s ability to service its
loan by altering the quantum and/or risk of cash ows associated with the asset, and the sensitivity of that valuation to such factors.
— market risks the borrower may be subject to that impact the borrower’s net cash ows by altering revenue and cost projections, which may be
impacted by the supply and demand for the goods or services associated with a business or asset;
— risks associated with reliance on third party customers or service providers to monetise an asset (such as operators, tenants), and the impact of any
default in payment or service provision by such parties;
— operational risks that the business or asset may be subject to, including the reliance on the performance of people, processes and systems; and
— legal and regulatory risks which the business or asset are subject to, such as changes to corporation tax, health and safety and environmental
compliance costs or changes to licences and consents.
b) Financing structure risks: risks resulting from the way the Company as an investor has accessed an asset’s cash ows and the associated risks and
lender security protections. These include:
— the seniority of the Group’s debt and the ranking of the Group in its subordinated positions, including the structure and nature of shared security,
demonstrated by metrics like loan-to-value or cost;
— the Group’s security structure, the perfection of that security, the control that the borrower has over the underlying assets, and its ability to
enforce that security along with the impact of enforcing against that security;
— the nancial position of the borrower and the potential impacts on security guarantees;
— any illiquidity premium associated with the liquidity of the nancing instrument; and
— the nature of repayment (bullet or amortising) and the conditions required to meet these payments (such as a renance, asset disposal or
otherwise).
This bottom-up consideration of credit risk for each loan, based on the specic information provided by the Investment Manager for each borrower and other
relative benchmarks such as comparable bond pricing and market analysis, taken with capital asset pricing model analysis, enables the independent Valuation
Agent to conclude their assessment on the likely recoverability of the forecast cash ows and to determine an appropriate discount rate and/or appropriate
credit impairment to apply to each loan.
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At 31 December 2023, eleven loans, totalling 22.5% of the fair value of the portfolio, ten property and social infrastructure loans and one asset nance
loan have missed interest and/or principal payments and therefore remain outstanding beyond their contractual maturities. These loans will continue to
be monitored by the Investment Manager with regular reporting to the Board. The concentration of credit risk within the Group’s investment portfolio is
mitigated by its diverse exposure to a range of borrowers across 42 loans, multiple assets, sectors and strategies.
At year end, the concentration of credit risk to any one key relationship counterparty did not exceed 20% (31 December 2022: <20%) of the Group’s total
assets. The Group had exposure to four key relationship counterparties (31 December 2022: ve) which together represent 58% (31 December 2022: 56%)
of the loans in the portfolio by value. The loans also lie with different borrower entities, and in some cases with different ownership structures, within these
relationships across different projects and assets.
Since the Company’s IPO in 2015, the Investment Manager has pursued an investment strategy that, amongst other things, has sought to diversify risk
across various sectors and borrowers. Following the decision by the Board to restrict investment, and, subject to the approval by shareholders of the
proposed Discontinuation Vote and the proposal to pursue an Orderly Realisation, the size and value of the Company’s portfolio will reduce as investments
are realised and concentrated in fewer holdings, and the mix of loans and underlying asset exposure will be affected accordingly. This may adversely affect
the overall performance of the Company’s portfolio as it is exposed to a portfolio with lower diversication.
17.7 Currency risk
The Group’s investments at 31 December 2023 were denominated in Pound Sterling, except for ve investments which are denominated in Euros and one
investment which is denominated in USD (31 December 2022: four Euro-denominated investments and one USD-denominated investment). The investments
are secured against Euro-valued and USD-valued contracted cash ows. The Company’s only currency exposure is through the trading activities of its
investee companies. The Company engages in currency hedging, in the form of ve forward foreign exchange contracts, to reduce the risk of adverse
movements in currency exchange rates in relation to its non-Pound Sterling denominated investments. Realised and unrealised gains or losses on forward
foreign exchange contracts are disclosed in note 3.
As an alternative to cash cover/margin required on these forward foreign exchange contracts, the Company has made use of its RCF, as disclosed in
note14.
Financial statements
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
17. Financial instruments continued
17.8 Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate sufcient cash resources to settle its obligations in full as they fall due or can only do so
on terms that are materially disadvantageous. The Company is a closed-ended investment company and therefore assets do not need to be liquidated to meet
redemptions, and sufcient liquidity is maintained to meet obligations as they fall due. The Company ensures it maintains adequate reserves by continuously
monitoring forecast and actual cash ows and matching the maturity proles of nancial assets and liabilities. During the year ended 31 December 2023,
investments made by the Group were funded by Company cash reserves, amounts received from repayments and the utilisation of the RCF.
The table below analyses the Company’s assets and liabilities in relevant maturity groupings based on the remaining period from 31 December 2023 to the
contractual maturity date. The Directors have elected to present both assets and liabilities in the liquidity disclosure below to illustrate the net liquidity
exposure of the Company. The Board has amended the presentation of the analysis below to reect the timeframe used in the stress testing and viability
analysis. Further information on viability can be found on page 73.
All cash ows in the table below are presented on an undiscounted basis.
31 December 2023
Less than
one month
£’000
One to
three months
£’000
Three to
twelve months
£’000
Greater than
twelve months
and not later
ve years
£’000
More than
ve years
£’000
Total
£’000
Financial assets
Cash and cash equivalents 30,936 — — — — 30,936
Other receivables and prepayments 9 8 233 — — 250
Financial assets at fair value through prot
or loss 33,294 111,593 61,843 158,130 128,249 493,109
Total nancial assets 64,239 111,601 62,076 158,130 128,249 524,295
Financial liabilities
Derivative nancial instruments — (11,133) (1,142) — — (12,275)
Other payables and accrued expenses (3) (1,154) (204) — — (1,361)
Total nancial liabilities (3) (12,287) (1,346) — — (13,636)
Net exposure 64,236 99,314 60,730 158,130 128,249 510,659
31 December 2022
Less than
one month
£’000
One to
three months
£’000
Three to
twelve months
£’000
Greater than
twelve months
£’000
Total
£’000
Financial assets
Cash and cash equivalents 10,311 — — — 10,311
Derivative nancial instruments — 5,027 — — 5,027
Other receivables and prepayments 6 7 53 — 66
Financial assets at fair value through prot or loss 28,581 15,563 75,743 477,388 597,275
Total nancial assets 38,898 20,597 75,796 477,388 612,679
Financial liabilities
Derivative nancial instruments (7,208) (6,128) (2,235) — (15,571)
Other payables and accrued expenses (51) (203) (3) — (257)
Revolving credit facilities — — (32,050) — (32,050)
Total nancial liabilities (7,259) (6,331) (34,288) — (47,878)
Net exposure 31,639 14,266 41,508 477,388 564,801
The Directors’ assessment of the Company’s ability to continue as a going concern, in note 2.1, includes an assessment of liquidity risk. The Board has concluded
that the Company will be able to generate sufcient cash resources to settle its obligations in full as they fall due for a period of at least twelve months.
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17.9 Fair values of nancial assets
Valuation of nancial instruments
The Company measures fair values using the following fair value hierarchy that reects the signicance of inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is signicant to their fair value measurement of the
relevant assets as follows:
— Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities;
— Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1; and
— Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.
An investment is always categorised as Level 1, 2 or 3 in its entirety. In certain cases the fair value measurement for an investment may use a number
of different inputs that fall into different levels of the fair value hierarchy. In such cases, an investment level within the fair value hierarchy is based
on the lowest level of input that is signicant to the fair value measurement. The assessment of the signicance of a particular input to the fair value
measurement requires judgement and is specic to the investment.
The independent Valuation Agent has carried out semi-annual fair valuations of the nancial assets of the Subsidiary (quarterly for investments which may
be subject to discount rate changes). The same discount rates, determined by the independent Valuation Agent, are applied to the future cash ows of the
Secured Loan Notes issued by the Subsidiary to the Company to determine the fair value of the assets of the Company.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The tables below set out fair value measurements of nancial instruments at the year end, by the level in the fair value hierarchy into which the fair
valuemeasurement is categorised. The amounts are based on the value recognised in the statement of nancial position. All fair value measurements
arerecurring.
31 December 2023
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through prot or loss — — 366,818 366,818
Derivative nancial instruments (assets) — 107 — 107
Total — 107 366,818 366,925
31 December 2023
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Derivative nancial instruments (liabilities) — (5) — (5)
Total — (5) — (5)
31 December 2022
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through prot or loss — — 435,071 435,071
Derivative nancial instruments (assets) — 243 — 243
Total — 243 435,071 435,314
31 December 2022
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Derivative nancial instruments (liabilities) — (257) — (257)
Total — (257) — (257)
The derivative nancial instruments are classied as Level 2 as observable market data and are used for valuation and pricing.
The Directors have classied the nancial instruments relating to ‘Investments in Subsidiary’ as Level 3 due to the limited number of comparable and
observable market transactions in this sector. The primary input for Level 3 at year end is the discount rates for these investments (excluding the loans
held at net realisable value which are not valued on a discounted cash ow basis; refer to page 116 for further information); discount rates are considered
to be primarily modelled rather than market observed. The secured loan facilities that the Subsidiary has invested in are also classied as Level 3.
Financial statements
133
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
17. Financial instruments continued
17.9 Fair values of nancial assets continued
The following table shows a reconciliation of all movements in the fair value of nancial instruments categorised within Level 3 between the beginning and
end of the year:
31 December
2023
£’000
31 December
2022
£’000
Opening fair value of nancial instruments at fair value through prot or loss 435,071 446,989
Investment in Subsidiary 32,655 101,985
Capital repayments from Subsidiary (93,512) (95,622)
Realised loss on nancial assets at fair value through prot or loss:
Debt – Secured Loan Notes up to £1,000,000,000 (3,091)
1
(1,326)
Unrealised (loss)/gain on nancial assets at fair value through prot or loss
2
:
Debt – Secured Loan Notes up to £1,000,000,000 (4,257) (17,700)
Equity – representing one ordinary share in the Subsidiary (48) 745
Closing fair value of nancial instruments at fair value through prot or loss 366,818 435,071
1. Comprises a write-down in respect of the Co-living group loan.
2. Refer to note 11 for further information.
For the Company’s nancial instruments categorised as Level 3, changing the discount rate used to value the underlying instruments alters the fair value.
In determining the discount rate for calculating the fair value of nancial assets at fair value through prot or loss, reference is made to Pound Sterling
interest rates, movements of comparable credit markets and observable yields on comparable instruments. Hence, movements in these factors could give
rise to changes in the discount rate. A change in the discount rate used to value the Level 3 investments would have the effect on the valuation as shown
inthe table in note 17.4.
The fair value of the investment in the Subsidiary is based on the aggregate of the NAV of the Subsidiary and the value of the Secured Loan Notes issued by
the Subsidiary. At 31 December 2023, the NAV of the Subsidiary was as follows:
31 December
2023
£’000
31 December
2022
£’000
GABI UK
1
4,039 4,087
1. Refer to note 11 for further information.
The key driver of the NAV of the Subsidiary is the valuation of its portfolio of secured loan facilities issued to the Project Companies.
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The Secured Loan Notes issued by the Subsidiary that the Company has subscribed for, are valued on a discounted cash ow basis in line with the model
used by the independent Valuation Agent, applying the following discount rates:
Fair
value
1
£’000
Valuation
technique
Key
unobservable
inputs
Discount
rate
Financial assets at fair value through prot or loss
– 31 December 2023 359,092
2
Discounted cash ow Discount rate 10.5%
3
Financial assets at fair value through prot or loss
– 31 December 2023 3,687
4
Net realisable value Discount rate —
Financial assets at fair value through prot or loss
– 31 December 2022 430,671
2
Discounted cash ow Discount rate 8.4%
3
Financial assets at fair value through prot or loss
– 31 December 2022 4,400
4
Net realisable value Discount rate —
1. Including the NAV of the Subsidiary.
2. Balance excludes the fair value of the loans held at net realisable value.
3. Weighted average discount rate
5
.
4. Fair value of the loans held at net realisable value which are not valued on a discounted cash ow basis, see page 116 for further information.
5. Alternative performance measure – refer to pages 142 to 144 for denitions and calculation methodology.
The investments in Project Companies held by the Subsidiary (excluding the loans held at net realisable value, refer below) are valued on a discounted cash ow
basis, in line with the methodology used by the independent Valuation Agent. At the year end, discount rates ranged from 7-14% (31 December 2022: 6-13%).
At 31 December 2023, three loans were held at net realisable value. The Group’s Co-living group loan was valued at £1.2 million (31 December 2022: £4.4 million),
representing an estimate of amounts recoverable relating to retained cash within the corporate structure, the release of which is contingent upon the
outcome of ongoing planning and tax considerations, currently under review by the relevant authorities. One of the football nance loans was valued at £0.5
million (31 December 2022: £2.3 million), based on the guaranteed portion of the loan, which is held at par, with the unguaranteed portion written down to £nil
due to uncertainty around repayments. One of the multi-use community facility loans was valued at £1.9 million (31 December 2022: £2.8 million).
The Directors reviewed the valuation report provided by the independent Valuation Agent which references the inputs used in the valuation of investments and
the appropriateness of their classication in the fair value hierarchy. In particular, the Directors are satised that the signicant inputs in the determination
of the discount rate adopted by the independent Valuation Agent are pursuant to the independent Valuation Agent’s engagement letter. Should the valuation
approach change, causing an investment to meet the characteristics of a different level of the fair value hierarchy, it will be reclassied accordingly.
During the year, there were no transfers of investments between levels.
Directors’ assessment
The Directors met with the independent Valuation Agent during the year and post year end to discuss and challenge the following:
— the rationale for the level of discount rate increases determined by the independent Valuation Agent for each loan being lower than the observed increase in
risk-free rates;
— how the independent Valuation Agent’s assessment of the likelihood of full recovery of loans is reected in their fair valuation, based on information
received from the Investment Manager;
— how the structuring of a given loan, the security and the extent of control from the available enforcement arrangements and level of subordination is
reected by the independent Valuation Agent in their discount rate;
— the extent to which loans for which contractual repayment is either imminent or overdue are insensitive to discount rate changes and the impact of this
on fair valuation;
— the relative disparity between the valuation of assets held for sale versus the fair valuation of assets held to maturity; and
— the appropriateness of applying a discounted cash ow valuation methodology or an alternative such as assumed realisation based on estimated
recovery and/or appropriate impairment.
Based on these discussions, the Directors are satised that the methodology adopted by the independent Valuation Agent to fair value the loans is
reasonable. The impact on fair value attributable to any missed capital and/or interest payments for loans that are past their facility maturity date and any
other change in credit risk will continue to be monitored by the Investment Manager and reviewed regularly with the Board.
Financial statements
135
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Annual report and nancial statements 2023
Notes to the nancial statements continued
For the year ended 31 December 2023
18. Related party disclosures
As dened by IAS 24 Related Party Disclosures, parties are considered to be related if one party has the ability to control the other party or exercise
signicant inuence over the other party in making nancial or operational decisions. Subsidiary companies are also deemed to be related parties as
theyare members of the same group of companies.
Directors
The Directors of the Company are considered to be key management personnel of the Company. Directors’ remuneration for the year (including
reimbursement of Company-related expenses) totalled £259,000 (31 December 2022: £232,000).
At 31 December 2023, liabilities in respect of these services amounted to £63,000 (31 December 2022: £58,000).
At 31 December 2023, the Directors of the Company held directly or indirectly, and together with their family members, 161,171 ordinary shares
(31December2022: 161,171).
Alex Ohlsson is the managing partner of Carey Olsen, the Company’s Jersey legal advisers. Carey Olsen has provided legal services to the Company
during the year. Carey Olsen maintains procedures to ensure that the Chairman has no involvement in the provision of legal services to the Company.
TheCompany maintains procedures to ensure that the Chairman takes no part in any decision to engage the services of Carey Olsen. During the year, the
aggregate sum of £10,000 (31 December 2022: £2,000) was paid to Carey Olsen in respect of legal work undertaken, of which £nil (31 December 2022: £nil)
is outstanding at year end.
Investment Manager
The Company is party to an investment management agreement with the Investment Manager, which was most recently amended and restated in December
2020, pursuant to which the Company has appointed the Investment Manager to provide discretionary portfolio and risk management services relating to
the assets on a day-to-day basis in accordance with its investment objective and policies, subject to the overall control and supervision of the Directors.
As previously announced, no material amendments or extensions of facilities to existing borrowers will be made ahead of the Discontinuation Vote at the
2024 AGM without the Board’s prior consent.
A procedure has been put in place between the Board and the Investment Manager to managethis.
It is the Board’s current intention that the Investment Manager is retained to provide investment management services in connection with the Orderly
Realisation. The Board considers the Investment Manager is best placed to provide such services taking into account its knowledge and experience of the
Company’s investment portfolio.
To this effect, the Board has commenced discussions with the Investment Manager in respect of proposals for the provision of investment management
services during the Orderly Realisation under revised terms that seek to incentivise the Investment Manager to achieve the objective of maximising
shareholder returns in a timely manner.
In due course the Investment Manager will engage with shareholders to present its plan for the Orderly Realisation. Further information will be set out in
the Orderly Realisation Circular.
As a result of the responsibilities delegated under this investment management agreement, the Company considers it to be a related party by virtue of
being ‘key management personnel’. Under the terms of the investment management agreement, the notice period of the termination of the Investment
Manager by the Company is twelve months.
For its services to the Company, the Investment Manager receives an investment management fee which is calculated and paid quarterly in arrears at an
annual rate of 0.9% per annum of the prevailing NAV of the Company minus the value of the cash holdings of the Company pro rata for the period for which
such cash holdings have been held. The Investment Manager receives an annual fee of £25,000 in relation to its role as the Company’s AIFM plus annual
increases in accordance with the rate of the RPI.
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During the year, the Company incurred £3,480,000 (31 December 2022: £3,752,000) in respect of the services outlined above; £3,448,000
(31December2022: £3,724,000) in respect of investment management services and £32,000 (31 December 2022: £28,000) in respect of AIFM services
provided by the Investment Manager. At 31 December 2023, liabilities in respect of these services amounted to £840,000 (31 December 2022: £921,000).
The Investment Manager, at its discretion, is entitled to an arrangement fee of up to 1% of the value of each investment made by the Company.
TheInvestment Manager typically expects the cost of any such fee to be covered by the borrowers, and not the Company. Of the current portfolio,
suchfee in respect of 52 of the Group’s investments has been met and paid by borrowers.
During the year, the Investment Manager received £243,000 (31December 2022: £730,000) from arrangement fees which have been met by the borrowers
and £nil (31 December 2022: £328,000) from arrangement fees which have been met by the Company. To the extent any arrangement fee negotiated by the
Investment Manager with a borrower exceeds 1%, the benet of any such excess is paid to the Company.
A number of the Directors and employees of the Investment Manager also sit on the board of the Subsidiary.
At 31 December 2023, the key management personnel of the Investment Manager held directly or indirectly, and together with their family members,
2,156,040 ordinary shares in the Company (31 December 2022: 1,113,097 ordinary shares).
At 31 December 2023, the Directors and/or shareholders of the Investment Manager, and their family members, directly or indirectly own an equity interest
in the Subsidiary’s student accommodation investments. These investments are valued by the independent Valuation Agent in line with the rest of the
portfolio and were approved by the Board at the time of acquisition.
Subsidiary
At 31 December 2023, the Company owns a 100% (31 December 2022: 100%) controlling stake in the Subsidiary. The Subsidiary is considered to be a related
party by virtue of being part of the same group. The Company indirectly owns 100% of GABI Housing Limited, GABI GS Limited and GABI Housing 2 Limited;
for further information, refer to note 1.
The following tables disclose the transactions and balances between the Company and the Subsidiary. Please refer to note 11 for further details about the
transactions during the year:
Transactions
31 December
2023
£’000
31 December
2022
£’000
Intercompany income received
Other income 1,217 1,240
Arrangement fee income 109 258
Loan note interest realised 31,747 31,945
Total 33,073 33,443
Balances
31 December
2023
£’000
31 December
2022
£’000
Intercompany balances receivable — —
Principal value of intercompany holdings within nancial assets at fair value through prot or loss 370,435 469,463
Financial statements
137
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
19. Subsequent events after the report date
The following events occurred post year end:
— on 8 February 2024, the Company announced a fourth interim dividend of 1.58125 pence per share amounting to £6.7 million which was paid on 15 March
2024 to ordinary shareholders on the register at 16 February 2024;
— on 14 March 2024, the Company announced the outcome of the Strategic Review, a process whereby the Board engaged extensively with shareholders
in seeking feedback to inform its decision-making process. Accordingly, the Board has reached the conclusion that shareholder value will be best
served by a proposed Orderly Realisation and return of capital to shareholders. Shareholders will be given the opportunity to vote on a discontinuation
of the Company at the Company’s AGM on 20 May 2024. In addition, subject to the approval by shareholders of the Discontinuation Vote, the Board
intends to convene an EGM to be held immediately after the 2024 AGM at which it will seek shareholder approval for certain resolutions required to
facilitate the Orderly Realisation. Further information will be included in the Orderly Realisation Circular which will be published on 2 May 2024;
— the Company’s forward foreign exchange contracts shown in note 17.1 matured and were replaced on the same terms as the existing contracts;
— the Group received 22 repayments totalling £41.4 million of which £27.4 million was the early part-repayment of ve property lending group loans
forwhich an extension of the maturity date to 30 June 2024 for the remaining balance of £44.3 million was agreed with the borrower and announced
bythe Company post period end;
— the independent Valuation Agent decreased the fair value of six problem and watchlist loans by £8.5 million and one further conicted loan by £1.7 million
in their valuation report as at 31 March 2024; and
— at the date of the report, principal amounts of £50.3 million in relation to seven loans representing 14.7% of the portfolio were past due for repayment.
In addition, interest amounting to £5.9 million in relation to seven loans had missed their contractual payment dates. The Investment Manager is
proactively working with the relevant borrowers and has either agreed or is considering short-term extensions to facilitate an orderly redemption of
these facilities and the settlement of interest due, where appropriate.
20. Ultimate controlling party
It is the view of the Board that there is no ultimate controlling party.
Notes to the nancial statements continued
For the year ended 31 December 2023
138
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Key dates
March
Payment of fourth interim dividend
April
Annual results announced
May
Annual General Meeting
June
Payment of rst interim dividend
August
Payment of second interim dividend
September
Interim results announced
December
Payment of third interim dividend
Company’s year end
NAV publication
The Company’s NAV is released to the LSE on a quarterly basis and is
published on the Company’s website. From 30 June 2024, the Company will
publish NAVs on a half-yearly basis.
Further information
Copies of the Company’s annual and half-yearly reports, quarterly investor
reports, stock exchange announcements and further information on the
Company can be obtained from the Company’s website.
Warning to users of this report
This report is intended solely for the information of the person to whom it
is provided by the Company, the Investment Manager or the Administrator.
This report is not intended as an offer or solicitation for the purchase of
the shares in the Company and should not be relied on by any person for
the purpose of accounting, legal or tax advice or for making an investment
decision. The payment of dividends and the repayment of capital are not
guaranteed by the Company. Any forecast, projection or target is indicative
only and not guaranteed in any way, and any opinions expressed in this report
are not statements of fact and are subject to change. Neither the Company
nor the Investment Manager are under any obligation to update such
opinions.
Past performance is not a reliable indicator of future performance, and
investors may not get back the original amount invested. Unless otherwise
stated, the source for all information contained in this report is the
Investment Manager and the Administrator. Information contained in this
report is believed to be accurate at the date of publication, but neither
the Company, the Investment Manager and the Administrator give any
representation or warranty as to the report’s accuracy or completeness.
This report does not contain and is not to be taken as containing any
nancial product advice or nancial product recommendation. Neither the
Company, the Investment Manager and the Administrator accept any liability
whatsoever for any loss (whether direct or indirect) arising from the useof
this report or its contents.
Shareholder information
Additional info
139
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Loan details
Name Country
Valuation
£’000
Valuation
%
Principal balance
(including capitalised)
£’000
Interest
balance
£’000
Total capitalised
(since inception)
£’000 Seniority Currency
Conicted loans (Note 1): 20.6%
Student Accom 5 USA 2,297 0.6% 2,313 61 413 Subordinated GBP
Student Accom 2 Australia 22,563 6.2% 20,906 1,851 4,914 Subordinated GBP
Student Accom 8 USA 15,948 4.4% 15,812 136 1,859 Subordinated GBP
Student Accom 7 USA 14,235 3.9% 13,807 441 4,034 Subordinated GBP
Student Accom 3 Ireland 12,291 3.4% 12,001 290 6,062 Subordinated GBP
Student Accom 6 UK 7,304 2.0% 7,190 165 890 Subordinated GBP
Non-conicted problem loans: 4.3%
Property Co UK 12,553 3.5% 15,994 1,003 — Senior GBP
Social 1 UK 1,915 0.5% 3,400 205 120 Senior GBP
Property Co 13 UK 1,246 0.3% 1,246 — — Senior GBP
Non-conicted watchlist loans: 1.2%
Social 2 UK 3,956 1.1% 6,136 — 1,185 Senior GBP
Contract Income 6 Italy 526 0.1% 1,577 29 — Senior EUR
Property lending group loans: 19.9%
Development Fin Co 6 UK 34,057 9.4% 34,500 14 — Senior GBP
Bridging Co 2 UK 18,426 5.1% 18,651 9 — Senior GBP
Development Fin UK 18,285 5.0% 18,500 8 — Senior GBP
Mortgage Co 3 UK 1,006 0.3% 1,000 6 — Subordinated GBP
Mortgage Co 2 UK 383 0.1% 381 2 — Subordinated GBP
Care home loans: 17.0%
Care Homes Co 2 UK 15,461 4.3% 15,928 7 — Senior GBP
Care Homes Co 3 UK 14,630 4.0% 15,070 7 — Senior GBP
Care Homes Co 5 UK 14,284 3.9% 14,778 0 2,225 Senior GBP
Care Homes Co 1 UK 11,440 3.2% 11,767 5 — Senior GBP
Care Homes Co 4 UK 5,935 1.6% 5,940 3 — Subordinated GBP
Bridging Co property loan: 5.8%
Bridging Co 1 UK 21,093 5.8% 21,987 14 — Senior GBP
Other property nancing loans: 6.2%
Property Co 7 UK 13,691 3.8% 14,700 41 — Subordinated GBP
Property Co 8 UK 8,674 2.4% 8,664 27 — Subordinated GBP
Other loans by sector: 5.7%
Football Finance 8 UK 14,330 3.9% 14,000 334 — Senior GBP
Football Finance 6 Italy 1,839 0.5% 1,690 39 — Senior EUR
Contract Income 7 UK 1,798 0.5% 1,781 17 — Senior GBP
Football Finance 9 UK 1,784 0.5% 1,630 154 — Senior GBP
Football Finance 7 Brazil 1,098 0.3% 956 98 — Senior EUR
4.1%
Property Co 2 UK 15,000 4.1% 17,514 6 636 Senior GBP
9.5%
Property Co 16 UK 10,285 2.8% 10,413 — 1,813 Subordinated GBP
Property Co 20 Ireland 9,503 2.6% 9,527 — 852 Senior GBP
Property Co 19 UK 6,039 1.7% 6,185 393 — Senior GBP
Property Co 21 Ireland 4,446 1.2% 4,446 3 — Senior EUR
Property Co 6 UK 3,017 0.8% 3,000 17 — Subordinated GBP
Property Co 18 UK 589 0.2% 578 13 52 Senior GBP
Property Co 17 UK 518 0.1% 504 14 — Senior GBP
1.5%
O&M Company 5,577 1.5% 5,441 2 — Senior GBP
4.1%
Asset Finance Co 5 UK 9,236 2.6% 9,231 5 — Senior GBP
Boiler Co UK 3,635 1.0% 3,710 2
— Senior GBP
Music Finance 1 Australia 1,766 0.5% 1,646 2 — Senior USD
Asset Finance Co 2 UK 155 0.0% 159 1 — Senior EUR
Portfolio summary totals 362,814 100.0% 374,659 5,424 25,055
Portfolio information (unaudited)
1. Conicted loans: where the Investment Manager or any shareholders, directors or employees of the Investment Manager are directly or indirectly interested in any entity or
asset in relation to the investment.
140
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Maturity
date
Current interest
rate
%
Current
interest
treatment
Discount rate
% Sector
Problem or
watchlist Notes
20-Apr-23 9.50% Pay 14.25% Social infrastructure Problem 4
31-Dec-23 11.75% Pay 12.75% Social infrastructure Watchlist 1
31-Aug-27 11.51% Capitalise 11.51% Property
31-Dec-24 12.67% Capitalise 12.67% Property Watchlist 4
30-Jun-32 9.50% Pay 9.50% Social infrastructure
31-Dec-23 9.00% Pay 10.00% Social infrastructure
31-Dec-36 6.30% Pay 10.30% Social infrastructure Problem 2
31-Mar-29 8.00% Pay 39.98% Social infrastructure Problem 3
31-Mar-24 0.00% Pay 0.00% Property Problem 1
31-Dec-32 8.00% Capitalise 13.00% Social infrastructure Watchlist 2
30-Jun-24 2.03% Pay 4.00% Asset nance Watchlist 3 Agreed maturity extension from
31 March 2024 to 30 June 2024
30-Jun-24 7.50% Pay 12.99% Property
Repayments of £27.4 million post year end
Agreed extension of maturity date for remaining
to30June 2024
30-Jun-24 7.80% Pay 12.99% Property
30-Jun-24 8.00% Pay 12.99% Property
30-Sep-24 12.99% Pay 12.99% Property
30-Sep-24 12.99% Pay 12.99% Property
30-Jun-37 8.00% Pay 8.50% Social infrastructure
30-Jun-38 8.00% Pay 8.50% Social infrastructure
30-Jun-38 8.75% Capitalise 9.25% Social infrastructure
31-Mar-36 8.00% Pay 8.50% Social infrastructure
31-Mar-24 9.30% Pay 9.80% Social infrastructure Loan was repaid in full post year end in April 2024
30-Nov-27 7.60% Pay 8.85% Property
31-Mar-24 9.28% Pay 12.99% Property
30-Apr-24 9.28% Pay 9.53% Property
30-Sep-27 8.91% Pay 8.91% Asset nance
31-Dec-25 9.00% Pay 9.00% Asset nance
31-Jul-24 8.23% Pay 8.23% Asset nance
30-Nov-24 8.00% Pay 8.00% Asset nance
30-Sep-24 6.08% Pay 6.08% Asset nance
31-Dec-46 6.00% Pay 7.75% Social infrastructure
31-Aug-24 9.50% Capitalise 10.75% Property
31-May-24 10.35% Capitalise 10.60% Property Agreed repayment date 31 May 2024
31-Dec-52 6.00% Pay 6.75% Property
31-Mar-26 8.25% Pay 8.50% Property
31-Dec-26 9.50% Pay 9.50% Property
31-Aug-24 9.00% Capitalise 9.50% Property
30-Sep-24 11.50% Pay 11.50% Property
30-Sep-30 7.80% Pay 7.00% Energy & infrastructure
31-Dec-26 8.70% Pay 8.70% Asset nance
31-Dec-25 7.80% Pay 9.80% Asset nance
30-Jun-27 8.10% Pay 8.10% Asset nance
31-Dec-24 6.50% Pay 7.00% Asset nance
8.68% 10.63%
Additional info
141
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Alternative performance measures (unaudited)
The Board and the Investment Manager assess the Company’s performance using a variety of measures that are not dened under IFRS Accounting
Standards and are therefore classed as APMs. Where possible, reconciliations to IFRS Accounting Standards are presented from the APMs to the most
appropriate measure prepared in accordance with IFRS.
All items listed below are IFRS Accounting Standards nancial statement line items unless otherwise stated. APMs should be read in conjunction with the
statement of comprehensive income, statement of nancial position, statement of changes in equity and statement of cash ows, which are presented in
the nancial statements section of this report. The APMs below may not be directly comparable with measures used by other companies.
Adjusted earnings/EPS
In respect of a period, the EPS is adjusted to remove the impact of fair valuation movements of investments in such period arising from: (i) discount rate
adjustments; and (ii) upward or downward revaluations associated with the performance of investments.
Adjusted EPS
For the
year ended
31 December
2023
£’000
For the
year ended
31 December
2023
(Pence per
share)
For the
year ended
31 December
2022
£’000
For the
year ended
31 December
2022
(Pence per
share)
Basic and diluted earnings 18,264 4.27 7,687 1.75
Increase/(decrease) to weighted average discount rates
1
6,360 1.49 6,775 1.54
Write-down of the Co-living group loan 3,091 0.72 14,438 3.29
Other downward revaluations associated with the performance of investments 2,310 0.54 — —
Adjusted earnings/EPS 30,025 7.02 28,900 6.58
Annualised loss ratio
A measure of the Company’s ability to preserve the capital value of its investments over the long term. It is calculated as total aggregate downward
revaluations divided by total invested capital since IPO expressed as a time weighted annual percentage.
For the
year ended
31 December
2023
For the
year ended
31 December
2022
Total aggregate downward revaluations since IPO 43,063 38,544
Total invested capital since IPO 1,057,906 1,017,791
Percentage (annualised) 0.50% 0.48%
Annualised total shareholder return since IPO
Total shareholder return
1
expressed as a time weighted annual percentage.
This is a standard performance metric across the investment industry and allows comparability across the sector.
Source: Bloomberg
Average LTV
The ratio of a loan or mortgage to a property valuation, averaged across the Company’s property investments, expressed as a percentage. This ratio
demonstrates the headroom in the underlying asset values to absorb negative movements in property valuations.
1. Refer to relevant APM on page 144 for further information.
142
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Average NAV
The average NAV of the Company over the reporting year.
Quarter ended
NAV per share
31 December
2023
(pence)
NAV per share
31 December
2022
(pence)
For the
year ended
31 December
2023
£’000
For the
year ended
31 December
2022
£’000
31 March 2023/2022 95.13 99.36 407,010 437,005
30 June 2023/2022 93.96 98.45 399,921 433,031
30 September 2023/2022 93.36 96.18 397,373 423,016
31 December 2023/2022 93.21 94.90 396,745 412,000
Average NAV 93.92 97.22 400,262 426,263
Discount/average discount
The amount, expressed as a percentage, that the Company’s shares trade below the prevailing NAV per share. This metric is shown at a point in time or as
an average over the stated period.
Dividend cover ratio
Ratio of earnings to dividends calculated as dividends per share divided by EPS.
For the
year ended
31 December
2023
For the
year ended
31 December
2022
Total prot and comprehensive income (£’000) 18,264 7,687
Weighted average number of shares 427,242,221 439,291,385
Basic EPS (p) 4.27 1.75
Adjusted EPS
1
(p) 7.02 6.58
Dividends (p) 6.325
2
6.325
Dividend cover ratio (basic) 0.68 0.28
Dividend cover ratio (adjusted) 1.11 1.04
Dividend yield
Total dividend per share declared for the year annualised, relative to the closing share price at the year end, expressed as a percentage.
IRR
IRR is the interest rate at which the net present value of all the cash ows (both positive and negative) from a project or investment equal zero.
The internal rate of return is used to evaluate the attractiveness of a project or investment.
Ongoing charges ratio
Ongoing charges ratio (previously “total expense ratios” or “TERs”) is a measure of the annual percentage reduction in shareholder returns as a result
ofrecurring operational expenses assuming markets remain static and the portfolio is not traded.
This is a standard performance metric across the investment industry and allows comparability across the sector and it is calculated in accordance with
the AIC’s recommended methodology.
1. Refer to relevant APM on page 142 for further information.
2. Total dividends of 6.325 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2023, which was declared post year end.
Additional info
143
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Alternative performance measures (unaudited) continued
1. Refer to relevant APM on page 143 for further information.
Ongoing charges ratio continued
Ongoing charges
For the
year ended
31 December
2023
£’000
For the
year ended
31 December
2022
£’000
Investment management fees 3,448 3,724
Directors’ remuneration 259 232
Operating expenses 1,599 1,759
Total expenses 5,306 5,715
Non-recurring expenses (59) (492)
Total 5,247 5,223
Average NAV
1
400,262 426,263
Ongoing charges ratio 1.3 1.2
Premium/average premium
The amount, expressed as a percentage, that the Company’s shares trade above the prevailing NAV per share. This metric is shown at a point in time or as
an average over the stated period.
Total NAV return
A measure of the performance of a company’s NAV over the stated period. It combines NAV movements and dividends to show the total return to the
shareholder expressed as a percentage. It assumes that dividends are reinvested in the shares at the time the shares are quoted ex-dividend.
This is a standard performance metric across the investment industry and allows comparability across the sector.
Source: Bloomberg.
Total shareholder return
A measure of the performance of a company’s shares over the stated period. It combines share price movements and dividends to show the total return to
the shareholder expressed as a percentage. It assumes that dividends are reinvested in the shares at the time the shares are quoted ex-dividend.
This is a standard performance metric across the investment industry and allows comparability across the sector.
Source: Bloomberg.
Weighted average annualised yield
The weighted average yield on the investment portfolio calculated based on the yield of each investment weighted by the principal balance outstanding on
such investment, expressed as a percentage. The weighted average yield does not include principal indexation.
The yield forms a component of investment cash ows used for the valuation of nancial assets at fair value through prot or loss under IFRS 9.
Weighted average discount rate
A rate of return used in valuation to convert a series of future anticipated cash ows to present value under a discounted cash ow approach. This
approach is used for the valuation of nancial assets at fair value through prot or loss under IFRS 9.
The average rate is calculated with reference to the relative size of each investment.
Weighted average number of shares
The weighted average number of shares is calculated by multiplying the number of shares in issue during the year after buybacks of shares by the
percentage of the reporting period for which that number applies for each period. The total weighted average number of shares at the year end was
427,242,221 shares.
144
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Glossary
Adjusted EPS
Refer to APMs on pages 142 to 144
AGM
The Annual General Meeting of the Company
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
Annualised total shareholder return since IPO
Refer to APMs on pages 142 to 144
APM
Alternative performance measure
Articles
The articles of association of the Company
Average LTV
Refer to APMs on pages 142 to 144
Benets to end users in society
The Company denes benets to end users in
society as those aligning with the UN SDGs
Bidco
The special purpose company established to
holdassets for sale as part of the Co-living
grouprestructure
Borrower
Owner of a Project Company to which the Group
advances loans
BPA-free
Bisphenol A free
BREEAM
Science-based suite of validation and
certication systems for sustainable built
environment
Carey Olsen
Carey Olsen Jersey LLP
CIF Law
Collective Investment Funds (Jersey) Law 1988
CNG
Compressed natural gas stations supplying 100%
renewable waste-derived biomethane
Company
GCP Asset Backed Income Fund Limited
Continuation
The potential continuation of the Company in
its current form in accordance with its current
investment policy delivered by the Investment
Manager, paired with a partial capital return
CPI
Consumer price index
Discontinuation Vote
An ordinary resolution at the Company’s 2024
AGM that the Company cease to continue in its
current form
Discount
Refer to APMs on pages 142 to 144
Discount rate
Refer to APMs on pages 142 to 144
Dividend cover ratio
Refer to APMs on pages 142 to 144
DTRs
Disclosure Guidance and Transparency Rules of
the FCA
EDCI
ESG Data Convergence Initiative
EGM
Extraordinary General Meeting
EPS
Earnings per share
ESG
Environmental, social and governance
FCA
Financial Conduct Authority
FRC
Financial Reporting Council
FTE
Full-time equivalent
GABI GS
GABI GS Limited
GABI Housing
GABI Housing Limited
GABI Housing 2
GABI Housing 2 Limited
GABI UK and/or the Subsidiary
GCP Asset Backed Income (UK) Limited
GCP Infra
GCP Infrastructure Investments Limited, a
third party company advised by the Investment
Manager
GHG
Greenhouse gas
GRESB
Global Real Estate Sustainability Benchmark
Gross assets
Total assets less other receivables and
prepayments
Group
The Company, GABI UK, GABI GS, GABI Housing,
GABI Housing 2
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations
Committee
IFRS Accounting Standards
International Financial Reporting Standards
Accounting Standards as issued by the IASB
IPO
Initial public offering
IRR
Internal rate of return
Refer to APMs on pages 142 to 144
ISAE
International Standard on Assurance
Engagements
ISO
International Organisation for Standardisation
Additional info
145
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
ISSB
International Sustainability Standards Board
Jersey Company Law
The Companies (Jersey) Law 1991, as amended
JFSC
Jersey Financial Services Commission
KPI
Key performance indicator
Listing Rules
FCA Listing Rules
LSE
London Stock Exchange
LTV
Loan-to-value
MAR
EU Market Abuse Regulation
Market capitalisation
Value of a company traded on the LSE, calculated
as total number of shares multiplied by closing
share price
Mezzanine
Mezzanine loans are those which rank behind
senior loans in the event that a company fails to
full its repayment obligations
MiFID II
The UK version of MiFID II which is part of UK
lawby virtue of the European Union (Withdrawal)
Act 2018
NAV
Net asset value
NAV total return
Refer to APMs on pages 142 to 144
O&M
Operations and maintenance
Ongoing charges ratio
Refer to APMs on pages 142 to 144
Orderly Realisation
A managed wind-down of the Company with an
orderly realisation of its assets
Orderly Realisation Circular
The circular convening and with further
information on the EGM
Potential sale
A potential sale of the entire issued share capital
of the Company and/or its assets
Premium
Refer to APMs on pages 142 to 144
PRI
UN Principles for Responsible Investment
Project Company
A special purpose company which owns and
operates an asset
RBSI
The Royal Bank of Scotland International Limited
RCF
Revolving credit facility
RPI
Retail price index
Scheme
Proposed combination of the Company with GCP
Infra (refer to page 4)
Secured Loan Notes
Loan notes issued to the Company
Senior
Senior loans are those that take priority over
unsecured or otherwise more “junior” debt such
as mezzanine loans in the event that a company
fails to full its repayment obligations
SONIA
Sterling Overnight Index Average
Strategic Review
The strategic review undertaken by the Boardto
consider how it may best deliver value to
shareholders
Subsidiary and/or GABI UK
GCP Asset Backed Income Fund (UK) Limited
TCFD
Task Force on Climate-related Financial
Disclosures
Total shareholder return
Refer to APMs on pages 142 to 144
UK AIFM Regime
Together, The Alternative Investment Fund
Managers Regulations 2013 (as amended by
The Alternative Investments Fund Managers
(Amendment etc.) (EU Exit) Regulations 2019) and
the Investment Funds sourcebook forming part of
the FCA Handbook, as amended from time to time
UK Code
UK Corporate Governance Code
UN SDGs
United Nations Sustainable Development Goals
Weighted average annualised yield
Refer to APMs on pages 142 to 144
Weighted average discount rate
Refer to APMs on pages 142 to 144
Glossary continued
146
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
Corporate information
The Company
GCP Asset Backed Income Fund Limited
ICF 5
St Helier
Jersey JE1 1ST
Directors and/or the Board
Alex Ohlsson (Chairman)
Joanna Dentskevich
Colin Huelin FCA
Marykay Fuller
Administrator, secretary and
registeredofce of the Company
Apex Financial Services (Alternative Funds)
Limited
ICF 5
St Helier
Jersey JE1 1ST
Tel: +44 (0)20 4549 0700
Advisers on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Advisers on Jersey law
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Broker
Barclays Bank plc
1 Churchill Place
London E14 5RB
Depositary
Apex Financial Services (Corporate) Limited
ICF 5
St Helier
Jersey JE1 1ST
Independent Auditor
PricewaterhouseCoopers CI LLP
37 Esplanade
St Helier
Jersey JE1 4XA
Investment Manager, AIFM and
securitytrustee
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Principal banker and lender
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Public relations
Quill Communications
107 Cheapside
London EC2V 6DN
Registrar
Link Market Services (Jersey) Limited
ICF 5
St Helier
Jersey JE1 1ST
Share Register Analyst
Orient Capital Limited
65 Gresham Street
London EC2V 7NQ
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine’s Way
London E1W 1DD
Additional info
147
GCP Asset Backed Income Fund Limited
Annual report and nancial statements 2023
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GCP Asset Backed Income Fund LimitedAnnual report and nancial statements for the year ended 31 December 2023
www.gcpassetbacked.com
GCP Asset Backed Income Fund Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Company number: 119412