Macroeconomic risks

The activities of Invalda INVL Group are influenced by the global and specific economic environment of the countries in which we operate and invest. Economic recessions and downturns may affect the companies and assets in which we have invested, both directly and through collective investment undertakings, reducing their value and adversely affecting our results. To minimise this risk, we manage a diversified investment portfolio and actively monitor macroeconomic indicators and their dynamics.

Geopolitical risks

The activities of Invalda INVL Group are directly influenced by the global and specific geopolitical environment of the countries in which businesses are developed and investments are made. The war in Ukraine and the potential risk of a military conflict in our region reduce the investment appeal of the region, which may adversely affect the value and liquidity of assets under management and the attraction of investor capital. We mainly operate in the Baltic region and to a lesser extent in Central and Eastern Europe, we assess the risks involved, monitor other regions, and invest part of our clients’ funds in other regions.

Regulatory risk

We have chosen a regulated asset management business model. INVL Asset Management and all the funds it manages are regulated and supervised by the Bank of Lithuania. Our funds are established and managed in compliance with the most stringent fund management requirements at the EU level, as set out in the Alternative Investment Fund Managers Directives (AIFMD). Compliance with these requirements is directly supervised and controlled by the Bank of Lithuania. This supervision and control enhance security for our investors, and we accept the risk that an increase in the regulatory burden may raise our costs and adversely affect our profitability.

The asset management business is also subject to capital adequacy requirements and, in the event of losses, may require additional contributions to the capital of the asset management companies. We actively monitor the dynamics of the asset management business and conduct stress tests.

Tax risk

Invalda INVL AB has concluded a number of transactions with related parties and its portfolio companies. Information on transactions concluded by the company with related parties is made public, as provided for by Article 37(2) of the Law on Companies. Under the current tax law, transactions with related parties must be official (i.e. carried out independently and under the same conditions). Despite the fact that our management makes every effort to ensure conformity to this standard, a theoretical tax risk remains here, i.e. a risk that the applicable taxes will be calculated on the basis of market prices if it is established that certain transactions were concluded in breach of this principle, also a risk that relevant fines and default interest will be imposed.

Payout and liquidity risk

By purchasing the Company’s shares, the shareholders assume the risk of the liquidity of the securities – if the demand for the shares decreases or if they are delisted, investors could face difficulties in disposing of them. If the Company’s financial situation worsens, the demand for the company’s shares may decrease, and so may the price.

Our investments may be illiquid – there is a risk that the planned transactions will not take place when the management of the issuer wishes. When investing in portfolio companies, there is a possibility that the sale of securities may take longer than planned or may not be as profitable as planned or even unprofitable due to a lack of demand on acceptable terms or other market circumstances. Our investments in corporate shares and collective investment undertakings involve risk, and in the worst case, it is possible to lose the entire amount invested. To maximize the realisable value of investments, the management makes sales strategy decisions relevant to the specific investment.

We have not approved a dividend payment policy and have not set a minimum dividend, so there is no guarantee that funds will be paid to shareholders. Decisions to pay dividends will depend on the profitability of operations, cash flows, investment plans the general financial situation, and other relevant circumstances.

Interest rate risk

Changes in interest rates can affect the cost of capital, profitability, and the ability to raise additional financing. There is a risk that a rise in inflation will cause central banks to raise interest rates, making it more expensive to service the loans associated with the Company’s investments, which could reduce the value of the Company’s investments. We actively monitor and respond to the interest rate environment to minimise the potential negative impact on managed investments.

Credit risk

There is a risk that buyers of products and services from direct portfolio companies or companies in which we have invested through collective investment undertakings may fail to meet their obligations, which would adversely affect profits. Failure to meet a significant portion of obligations on a timely basis may disrupt the issuer’s normal operations and require the issuer to seek additional sources of financing, which may not always be available. The Issuer is also exposed to risk when holding funds in bank accounts or investing in short-term financial instruments.

Risk of incorrect expectations and valuations

The profitability of Invalda INVL’s investments may be significantly lower than the average profitability historically achieved by the private equity industry, as past results are not indicative of future profitability.

Invalda INVL may not be able to realise the profit from investments in shares of companies or collective investment undertakings. The companies and collective investment undertakings in which we invest may not create value or may even destroy it, thus devaluing our investments.

The performance of the company and the group may fluctuate significantly and may not reflect future results.

The share price of Invalda INVL may fluctuate considerably. The price of the shares you purchase as an investor may go up or down depending on many factors, some of which are beyond our control.

The market may value the shares of Invalda INVL below the fair value of the assets.

Cyber security risks

The Company may be subject to attempts by others to gain unauthorised access to the information systems of the Company and/or its Group Companies, which may threaten the information security and system stability of the Company and/or its Group Companies. The Company and/or its portfolio companies may not be successful in detecting and protecting against such thefts and attacks. Theft, unauthorised access, or misuse of trade secrets and other confidential business information resulting from such events could materially and adversely affect the Company’s business, results of operations or financial condition. We actively monitor and assess vulnerabilities and allocate resources to develop appropriate protective processes and infrastructure.

Human resource risk

Invalda INVL and the asset management business it manages and other companies and collective investment entities in which we invest are dependent on key managers – their loss could adversely affect the company’s operations and we could lose business opportunities. We aim to provide people with opportunities to engage in work that interests them, develop their skills, and witness the positive impact of their contributions. Additionally, we offer competitive salaries and implement long-term motivational systems (including stock option programmes) that link the interests of the company and its employees to long-term successful activities and results. In our opinion, managing this risk involves maintaining all these factors.


Risk of fraud

There exists a theoretical risk that one or more individuals may misappropriate assets from funds or portfolio companies managed by the Company or the Group. The management of this risk is greatly assisted by the oversight provided by the Bank of Lithuania and the safekeeping of the funds’ assets by the bank, which acts as the custodian responsible for controlling fund movements. We also have strict procedures for the application of the ‘four-eyes’ principle, which ensures that not only the fund managers but also the staff of the management company’s accounting department, who operate independently of them, are always involved in the movement of the funds. Additionally, Investment Committees are always involved in making and implementing decisions related to fund asset management, and in higher risk situations, the Board of INVL Asset Management.

Risk of double loss

Invalda INVL Group invests in INVL-managed products together with fund participants. There exists a risk that in the event of a decline in the assets of a fund managed by INVL, not only the management company will incur losses or experience fee reductions, but also the Invalda INVL Group, which has invested directly in the fund, will experience the same negative consequences as the other participants in the fund. However, by investing directly in managed funds, we provide additional protection for investors, aligning the interests of the Invalda INVL Group with those of fund investors.

Sustainability risks

There is a risk of an environmental, social or governance (ESG) event or situation occurring that could have a material adverse effect on the value and reputation of an investment. When making investment decisions, we assess sustainability risks and the associated value creation opportunities. In our asset management activities, we follow a policy of responsible investment and integration of sustainability risks, and we provide information on sustainability in the financial services sector.