General Risks Disclosure for Private Equity
Equity and equity-related investments
Equity and equity-related investments carry a relatively high degree of risk owing to the business and financial uncertainties facing individual issuers. There is no assurance that a fund will be successful in its investments or that there will be any distributions to its investors.
Debt investments
The success of an investment in a debt instrument will depend, among other, on the borrower’s capacity to repay or refinance its debt on or before maturity. No guarantee is given on this capacity.
Illiquid investments
The interest in a fund cannot be freely sold. All transfer of such interests or shares are subject to the prior written consent of the general manager. Furthermore, there is no market for such interests or shares, and it is not foreseen that such a market will be created. It will therefore be difficult and costly, if not impossible, for an investor to sell his/her interests or shares before the end of the term of the fund.
Passive investment and reliance upon management
Investors in a fund will have no opportunity to control the day-to-day operations of the fund. The management company of the fund will have the sole and absolute discretion in structuring, negotiating, purchasing, financing, monitoring and eventually divesting investments made by the fund. Accordingly, investors have no choice but to rely entirely on the ability of the management company to select, manage and exit such investments. The loss of services of the manager could have an adverse impact on the fund’s ability to meet its investment objectives.
Consequences of default
Commitments to a fund will be drawn down over time. Failure to meet such payment obligations (when called) may result in sanctions against the defaulting investor.
No guarantee on invested capital
The success of a fund will depend on the expertise and commitment of the fund’s investment team, in particular the capacity of the fund’s team to identify, select and acquire suitable assets. There is no guarantee that the return objectives will be met. The investor must consider carefully the risks of this type of investment, including the fact that the invested capital is not guaranteed and the investor may experience a partial or total loss of capital.
Currency risk
Investments will be made in various countries and, accordingly, any proceeds therefrom may be denominated in different currencies. The value of investments will fluctuate according to currency exchange rates. In addition, a fund may incur costs in connection with currency conversions. Therefore, potential Investors should be aware that currency movements over the life of the fund and currency conversion costs will affect the value of their indirect holdings in the fund.
Portfolio valuation
Investments in a fund, in many cases, will be difficult to assess due to various factors, such as the lack of reliable market values and limited sources of useful valuation information. In addition, the appraised value of an asset may not always be consistent with the price at which the asset may be sold, and therefore may be higher or lower.
Distribution in kind
As a fund’s investments in unlisted companies may be difficult to realize, the fund may distribute such investments in kind which may include shares in unlisted and listed companies.
Conflicts of interests
Clients may be exposed to various conflicts of interests (including potential ones) as a result of the BNP Paribas Group’s different roles in a fund’s management and operation and in particular in terms of investment management and expertise (including the identification and presentation of investment opportunities) and of valuation and custody of the fund’s assets. It is nonetheless highlighted that the BNP Paribas Group has adopted and maintains policies, procedures and controls to prevent and manage conflicts of interests with a view to protecting the clients’ interests.
Various potential and actual conflicts of interest may arise from the overall investment activities or the roles of the parties involved in any investment product or transaction, their investment professionals and/or their affiliates. In particular, the counterparty / issuer / provider or its related entities or affiliates can offer or manage other investments which interests may be different to the interest of your investments in that investment product or transaction; or for cases where the product counterparty or issuer is BNP Paribas or its related entity or affiliate, BNP Paribas may also act as distributor, guarantor, calculation agent and/or arranger of the same product.
Leverage
The leveraged capital structure of some portfolio companies in which a fund may invest will increase the exposure of such investments to adverse financial or economic conditions.
Key executives
The success of a fund will largely depend on the fund’s team ability to attract and retain talent. Should one or more of these professionals become incapacitated, the fund’s performance could be adversely affected.