Economic, geopolitical risks

The performance of Invalda INVL AB depends on the overall economic, geopolitical and legal environment in the countries where it operates and invests.

Economic recessions and downturns can affect the companies and assets that we have invested in both directly and through collective investment undertakings and reduce their value, while negatively impacting our performance.

There is a risk that in case of inflation, the value of a share will grow slower than inflation, leading to lower-than-inflation returns. In this case, the real return from the increase in the value of shares earned by persons who sold the shares of the company in the market can be smaller than expected. In the event of deflation, there is a risk that the value of the company’s investments will decrease because of the drop in the general price level.

Regulatory risk

The main activity of Invalda INVL Group is asset management. A significant part of the assets under management consists of the assets of the second pillar pension funds in Lithuania and Latvia. Therefore, legal changes related to the pension system may negatively affect the results of this business line. We have opted for a regulated asset management business model, so a greater regulatory burden may increase our costs and have a negative effect on profitability. The asset management business must also meet capital adequacy ratios and may require additional contributions to the capital of asset management companies in the event of a loss.

Changes in the laws or regulations applicable to our operations may have a material effect on our business. Changes in the tax policy, as well as regulatory policy in sectors that depend on public funding, can have negative consequences for our business.

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.

Benefit and liquidity risk

By purchasing the company’s shares, shareholders assume the risk of securities liquidity – in case of a drop in demand for shares or delisting them from the stock exchange, investors would find it difficult to sell them. If the company’s financial situation deteriorates, the demand for shares as well as their price may decrease.

Our investments may be illiquid

There is a risk that the planned transactions will not take place if the management of the issuer requests it. When investing in portfolio companies whose securities (shares, bonds and other financial instruments) are not traded on regulated markets, there is a possibility that a sale of securities may take longer than planned due to a lack of demand or other market conditions or may not be as profitable as planned, if profitable at all. Our investments in corporate shares and collective investment undertakings are risky and, in a worst case scenario, the entire amount invested may be lost.

We have not approved a dividend payment policy and have not set a minimum amount of dividends; therefore, the payment of funds to shareholders is not guaranteed. Decisions to pay dividends depend on the profitability of operations, cash flows, investment plans, the overall financial situation and other circumstances.

Interest rate risk

Changes in interest rates can affect the cost of capital, profitability and the ability to attract additional financing. There is a risk that if inflation rises, central banks will raise interest rates and the servicing of loans related to the company’s investments will become more expensive, which may reduce the value of the company’s investments.

Credit risk

There is a risk that buyers of the products and services offered by direct portfolio companies or businesses in which we have invested through collective investment undertakings will not meet their obligations, which would negatively affect profits. Failure to fulfil a major part of liabilities in time may disrupt the issuer’s normal operations and may require additional sources of funding, which may not always be available. The issuer also bears the risk by holding funds in bank accounts and investing into short-term financial instruments.

Risk of false expectations and assessments

Past results do not reflect future profitability; therefore, the return on investment of Invalda INVL AB may be significantly lower than the average return historically achieved by the private equity industry.

Invalda INVL AB may be not 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 fail to create value or may even destroy it and devalue 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 AB may experience significant fluctuations. The price of the shares you have acquired as an investor may be higher or lower, depending on many factors, some of which are beyond our control.

The market value of the shares of Invalda INVL AB may be lower than the fair value of the assets.

Technological risk

The company may face attempts by other persons to find unauthorised access to the information systems of the company and/or Group companies, which may pose a threat to the information security and system stability of the company and/or its portfolio companies. The company and/or its portfolio companies may fail to detect and protect themselves against such theft and attacks. Theft, unauthorised access and the use of trade secrets and other confidential business information as a result of such an event may materially damage the company’s business, performance or financial standing.

Human resource risk

Invalda INVL AB, its asset management companies and other companies and collective investment undertakings in which we invest rely on key executives. Losing them could adversely affect the company’s performance and result in lost business opportunities.