Annual Report 2012 ATP Alternative Investments K/S CVR no. 32 29 98 06 The Annual Report has been presented and adopted at the company's annual general meeting. 30 January 2013
Contents Company information Company information 2 Management's review Management's review 3 Statements and reports Statement by the Board of Directors and the Manager 7 Internal Auditors' Report 8 Independent Auditors' Report 9 Financial statements Statement of comprehensive income for 2012 11 Balance sheet at 31 December 2012 12 Statement of changes in equity 13 Cash flow statement for 2012 14 Notes 15 ATP Alternative Investments K/S Annual Report 2012 1
Company information Company ATP Alternative Investments K/S Kongens Vænge 8 DK-3400 Hillerød CVR no.: 32299806 Financial year: 1 January 31 December Registered office: Hillerød Ownership The company is a wholly owned subsidiary of The Danish Labour Market Supplementary Pension Scheme (ATP) Kongens Vænge 8 DK-3400 Hillerød. Board of Directors Henrik Gade Jepsen (Chairman) Lars Damgaard Sørensen Manager Ulrik Dan Weuder Auditors Deloitte Statsautoriseret Revisionspartnerselskab ATP Alternative Investments K/S Annual Report 2012 2
Management's review Significant events in ATP Alternative Investments K/S during 2011 Net profit for the year came to DKK 1.1 billion. ATP Alternative Investments K/S total investment limit is DKK 16 billion. Of the investment commitments made, DKK 1.6 billion was spent on new investments. During the year DKK 2.0 billion was repaid from the portfolio funds, DKK 0.6 billion of which in the form of dividends. Main activity The main activities consist of monitoring of the general credit market, management of the existing portfolio and continuously searching the market for investment opportunities. The objective of ATP Alternative Investments K/S is to achieve an attractive long-term return through investment in portfolios of investment funds investing in companies, infrastructure, properties, etc. Investments may comprise of equity, mezzanine loans, senior and junior loans, options and bonds, etc. Investments have to date primarily comprised of credit investments via funds in companies and real estate in the senior and mezzanine loan segments. Portfolio allocation/investment strategy ATP Alternative Investments K/S seeks to build a diversified portfolio of investments within each fund. ATP Alternative Investments K/S typically invests in funds primarily structured as limited partnerships, with ATP Alternative Investments K/S as a limited partner. The portfolio allocation will consist mainly of investments in funds that complement the investment strategies within the investment area. Geographically, diversification will focus primarily on markets in the OECD countries. Investors As a limited partner, ATP is the sole investor in ATP Alternative Investments K/S. Development in activities and financial position No investments were made in new funds in 2012. At year-end 2012, the company had invested a total of DKK 3.3 billion with a market value of DKK 4.7 billion. As ATP Alternative Investments K/S's fund managers receive interest payments and investments are realised, the capital is returned to ATP Alternative Investments K/S, which subsequently distributes excess liquidity to the investor. Capital and cash flows On the formation of the company, a preliminary investment commitment from the investor of DKK 10 billion was established, with a subsequent DKK 6 billion increase on 28 March 2011. Concurrently with investments being made through funds, these funds draw capital from ATP Alternative Investments K/S's commitment. To finance ATP Alternative Investments K/S Annual Report 2012 3
these drawings, ATP Alternative Investments K/S regularly asks its investor, ATP, to make capital injections within the investment limit. Of the total investment limit of DKK 16 billion, investors in ATP Alternative Investments K/S have contributed DKK 3.9 billion for investments since the company was established. 24 per cent of the investors' commitments had thus been drawn at the end of the year. The company's investment commitments are made in USD. ATP Alternative Investments K/S portfolio can make new investment commitments totalling DKK 8.8 billion. Capital is returned to the investor in step with the fund manager's distribution of capital to ATP Alternative Investments K/S. The total movements can be specified as follows: From the investor to ATP Alternative Investments K/S: Investment limit DKK 16,000 million Total drawings DKK 3,899 million Remaining investment limit DKK 12,101 million Net profit for the year Net profit for the year was DKK 1.1 billion. The positive result is achieved in a year of generally rising equity and credit markets and with interest rates at record lows. Profit is derived from dividends of DKK 635 million and from market value increases. The profit is considered satisfactory. Investment-activity results for the year were a profit of DKK 1.1 billion. Administration expenses in connection with the company's investment activities account for a total of DKK 1.4 billion. Balance sheet The company's balance sheet is built up in step with the expansion of the portfolio. At year-end 2012, the fair market value of investments amounted to DKK 4.7 billion. As the portfolio will be built up over many years, as a combination of drawings on investments and potential new commitments to funds, ATP Alternative Investments K/S's balance sheet is expected to increase in the years to come. Portfolio value Investments are made mainly by purchasing equity investments in funds, with complementing investment strategies within the investment area. If the funds report in accordance with IFRS, the fair-value determinations made by the funds will be used in the valuation of equity investments, adjusted for changes observed in the market price of equivalent assets. ATP Alternative Investments K/S continuously monitors developments in the value of the underlying funds' investments to have the clearest possible picture of the fair market values and to monitor the funds' investment activities and reports. Monitoring is conducted through ongoing dialogue with the funds, benchmarking against relevant indices, comparisons with the performance of other managers and through participation in advisory boards. ATP Alternative Investments K/S Annual Report 2012 4
Investment risks Hedging of the financial risks of the portfolio is possible over an extended period of time by ensuring sufficient diversification of the investments. Market risks Currency risks ATP Alternative Investments K/S is denominated in Danish kroner (DKK). As the company invests in assets directly or indirectly denominated in currencies other than Danish kroner, the value of the company depends on movements in the exchange rate of the Danish krone against other currencies. ATP Alternative Investments K/S hedges the direct currency exposure of investments by entering into forward-exchange contracts with ATP. Equity risks ATP Alternative Investments K/S makes equity investments in funds. Accordingly, the value of ATP Alternative Investments K/S is subject to market risks associated with the underlying investments. Management of the investments in the funds involves a number of restrictions establishing frameworks for e.g. diversification by domicile and industry. Counterparty risks As part of its hedging of currency risks, ATP Alternative Investments K/S enters into forward-exchange contracts with ATP. The company has concluded framework agreements for these transactions, allowing netting across transactions in case of default. Collateral is not provided for the net values of exposures. Moreover, ATP Alternative Investments K/S's bank deposits are subject to credit risk, which is assessed as being moderate. Organisation and corporate governance The senior management of the company changed at the end of 2012, with Lars Rohde retiring as Chairman of the Board and also leaving the Board of Directors at the same time. The Board of Directors was constituted with Henrik Gade Jepsen as its new Chairman. The company's articles of association stipulate that the company's Board of Directors shall comprise at least three members. The Danish Business Authority has granted the company dispensation to the effect that the Board of Directors may consist of only two members until the next annual general meeting. The Board of Directors and the Manager of ATP Alternative Investments K/S focus on safeguarding the interests of the investors by achieving competitive long-term returns, underpinned by adequate risk management. Activities following the specific investments are concentrated on ongoing monitoring of investments through participation in advisory boards, third party verification and independent monitoring and assessments of the investment portfolio value creation. Annual general meeting The annual general meeting is the company's ultimate authority. In general, the annual general meeting makes decisions by simple majority. Investors' voting rights at the annual general meeting are proportionate to their nominal ownership interest. ATP Alternative Investments K/S Annual Report 2012 5
Board of Directors The Board of Directors is the supreme governing body of the company, approving decisions of a strategic or fundamental nature, including formulating the investment strategy. The general partner is entitled to appoint one member of the Board of Directors. The Board of Directors makes decisions regarding circumstances that are either unusual in nature or of great significance, including major commitments and investments. The specific tasks of the Board of Directors and the division of responsibilities between the Manager and the Board of Directors are governed by rules of procedure and articles of association. The rules of procedure govern the Board of Directors' and the Manager's decision-making powers in terms of day-to-day operations, investment decisions and reporting. The Board of Directors meets at least four times a year, including once every quarter to adopt the quarterly report. The Board of Directors receives no remuneration. Manager The Manager is Ulrik Dan Weuder, CEO, who is also employed at ATP. Under the rules of procedure for the Board of Directors and the Manager, the Manager is responsible for day-today management. The Manager receives no remuneration. Staff ATP Alternative Investments K/S has no staff other than the Manager. ATP Alternative Investments K/S purchases services primarily in the form of hours with ATP, including for investment analysis and management. The company has no incentive scheme. Social responsibility As part of the ATP Group, ATP Alternative Investments K/S practises business-driven social responsibility, meaning that all initiatives are to contribute to realising ATP s main objective: ensuring basic financial security for current and future Danish pensioners. Reference is made to the ATP Group Annual Report for 2012 in which social responsibility is mentioned in the management's review and in a separate article. Outlook for 2013 Results for 2013 are expected to be equivalent to a return on investment of 6-8 per cent. Market conditions are difficult to predict in detail, including when the investments can be disposed of. Post-balance sheet events There have been no significant or unusual events after the balance-sheet date. ATP Alternative Investments K/S Annual Report 2012 6
Statement by the Board of Directors and the Manager The Board of Directors and the Manager have today discussed and adopted the annual report of ATP Alternative Investments K/S for the financial year 1 January to 31 December 2012. The annual report has been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. In our opinion, the annual report provides a true and fair view of the company's assets, liabilities and financial position at 31 December 2012 and of its financial performance and cash flows for the financial year 1 January to 31 December 2012. In our opinion, the management s review provides a true and fair description of the circumstances covered by the review. We recommend that the annual report be adopted by the annual general meeting. Hillerød, 22 January 2013 Manager: Ulrik Dan Weuder Chief Executive Officer Board of Directors: Henrik Gade Jepsen Chairman of the Board Lars Damgaard Sørensen Member of the Board ATP Alternative Investments K/S Annual Report 2012 7
Internal Auditors' Report To the owners of capital in ATP Alternative Investments K/S Report on the financial statements We have audited the financial statements of ATP Alternative Investments K/S for the financial year 1 January to 31 December 2012. The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. Basis of opinion We conducted our audit in accordance with the Danish Financial Supervisory Authority's Executive Order on Auditing of the Danish Labour Market Supplementary Pension Scheme (ATP), the Labour Market Occupational Diseases Fund (AES), the Employees' Capital Pension Fund (LD) and in accordance with international Auditing Standards. Those standards require that we plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. The audit was performed in accordance with the division of responsibilities agreed with the external auditors and included an assessment of the procedures and internal controls established, including the risk management organised by the Board of Directors and the Manager relevant to reporting processes and material business risks. Based on materiality and risk we examined, on a test basis, the basis of amounts and other disclosures in the financial statements. Furthermore, the audit included evaluating the appropriateness of the accounting policies applied by the Board of Directors and the Manager and the reasonableness of the accounting estimates made by the Board of Directors and the Manager, as well as evaluating the overall presentation of the financial statements. We participated in the audit of risk and other material areas, and we believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit did not result in any qualification. Opinion In our opinion, the procedures and internal controls established, including the risk management organised by the Board of Directors and the Manager relevant to the reporting processes and material business risks, are satisfactory. Furthermore, in our opinion, the financial statements give a true and fair view of the company's assets, liabilities and financial position at 31 December 2012 and of its financial performance and cash flows for the financial year 1 January to 31 December 2012 in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. Statement on the management's review In accordance with local GAAP, we have read the management's review. We have not performed any further procedures in addition to the audit of the financial statements. On this basis, it is our opinion that the information provided in the management's review is consistent with the financial statements. Hillerød, 22 January 2013 Peter Jochimsen Chief Auditor ATP Alternative Investments K/S Annual Report 2012 8
Independent Auditors Report To the owners of capital in ATP Alternative Investments K/S Report on the financial statements We have audited the financial statements of ATP Alternative Investments K/S for the financial year 1 January to 31 December 2012, which comprise the accounting policies, income statement, balance sheet, statement of changes in equity, cash flow statement and notes. The financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU. The Board of Directors and the Manager's responsibility for the financial statements The Board of Directors and the Manager are responsible for the preparation and presentation of financial statements that give a true and fair view in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. The Board of Directors and the Manager are also responsible for the internal controls considered necessary by the Board of Directors and the Manager to prepare financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Auditing Standards and additional requirements in accordance with Danish auditing legislation. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on the auditor's judgment, including an assessment of the risks of material misstatement in the financial statements, whether due to fraud or errors. In making those risk assessments, the auditor considers internal controls relevant to ATP Alternative Investment K/S's preparation and fair presentation of the financial statements. The objective is to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ATP Alternative Investments K/S's internal controls. An audit also includes evaluating the appropriateness of the accounting policies applied and the reasonableness of the accounting estimates made by the Board of Directors and the Manager, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit did not result in any qualification. Opinion In our opinion, the financial statements give a true and fair view of the company's assets, liabilities and financial position at 31 December 2012 and of its financial performance and cash flows for the financial year 1 January to 31 December 2012 in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. ATP Alternative Investments K/S Annual Report 2012 9
Statement on the management's review In accordance with local GAAP, we have read the management's review. We have not performed any further procedures in addition to the audit of the financial statements. On this basis, it is our opinion that the information provided in the management's review is consistent with the financial statements. Copenhagen, 22 January 2013 Deloitte Statsautoriseret Revisionspartnerselskab Anders O. Gjelstrup State Authorised Public Accountant Bill Haudahl Pedersen State Authorised Public Accountant ATP Alternative Investments K/S Annual Report 2012 10
Statement of comprehensive income for 2012 In DKK '000 Note 2012 2011 5 Interest income and dividends, etc. 635,069 383,055 4 Market-value adjustments 463,022 247,168 5 Interest expenses -24,763-122 Investment activity-results 1,073,328 630,101 6 Investment-activity expenses -1,388-1,424 Net profit for the year 1,071,940 628,677 Other comprehensive income 0 0 Total comprehensive income for the year 1,071,940 628,677 Proposed distribution of net profit Transferred to equity 1,071,940 628,677 ATP Alternative Investments K/S Annual Report 2012 11
Balance sheet at 31 December 2012 In DKK '000 2012 2011 Note ASSETS Cash and cash equivalents 8,032 1,507 7,8 Equity investments 4,710,588 4,055,031 Receivables from subsidiaries 94,476 263 Total assets 4,813,096 4,056,801 LIABILITIES 9 Payables to subsidiaries 2,210 217,883 Total payables 2,210 217,883 Limited partner's and general partner's investments 2,905,013 3,004,985 Retained earnings 1,905,873 833,933 Total equity 4,810,886 3,838,918 Total liabilities 4,813,096 4,056,801 10 Contingent liabilities 11 Related-party transactions 12 Market risks 13 Credit risks 14 Liquidity risks 15 Fair-value disclosure 16 Long-term and short-term assets and liabilities ATP Alternative Investments K/S Annual Report 2012 12
Statement of changes in equity 2012 In DKK '000 Note 2012 Limited partner's and general partner's investments: 2011 Taken out and paid, beginning of period 3,004,985 2,918,748 Taken out and paid during the period 2,145,850 1,828,405 Repaid and distributed during the year -2,245,822-1,742,168 2,905,013 3,004,985 Retained earnings: Retained, beginning of period 833,933 205,256 Retained earnings for the period 1,071,940 628,677 1,905,873 833,933 Total equity 4,810,886 3,838,918 ATP Alternative Investments K/S Annual Report 2012 13
Cash flow statement for 2012 In DKK '000 Note 2012 Cash generated from operating activities 2011 Interest received, net 610,426 362,652 Market-value adjustments realised -232,197-8,967 Payments to suppliers -1,188-1,547 Cash flows from operating activities 377,041 352,138 Cash generated from investing activities Purchase of equity investments -1,629,252-1,442,573 Sale of equity investments 1,355,899 1,014,051 Cash flows from investing activities -273,353-428,522 Cash generated from financing activities Loan from general partner 2,145,850 0 Cash investments from investors -2,245,822 86,237 Cash flows from financing activities -99,972 86,237 Change in cash and cash equivalents 3,716 9,853 Exchange-rate adjustments 2,809-8,854 Cash and cash equivalents, beginning of period 1,507 508 Cash and cash equivalents at 31 December 8,032 1,507 ATP Alternative Investments K/S Annual Report 2012 14
Notes Note 1 Implementation of new or revised standards and interpretations The IASB and the EU have adopted the following new accounting standards and interpretations, effective from 2012, which have been implemented by the ATP Group with effect from 1 January 2012: Standards and interpretations that affect the results for the year or the financial position The implementation of new and revised standards in the financial statements for 2012 has not resulted in any changes in accounting policies that affect the comprehensive income for the year or the bonus potential. Revision of IFRS 7, Financial Instruments: Disclosures, has resulted in disclosure requirements for transfer transactions of financial assets where the transferor has some continued involvement with the asset transferred, whether or not the asset is derecognised. Standards and interpretations that have not yet taken effect At the time of the publication of this annual report, a number of new or revised standards and interpretations have not yet taken effect and, therefore, have not been incorporated into the annual report. The following new or revised standards and interpretations may result in changes in comprehensive income and bonus potential or the disclosures in the notes: Revised IAS 1, Presentation of Financial Statements (June 2011): Under the revised standard, items presented under other comprehensive income are to be classified as items which, under other standards, are later to be reclassified (recycled) from other comprehensive income to profit or loss, respectively items that are not later reclassified. The amendments are effective for financial periods beginning on or after 1 July 2012. IFRS 10, Consolidated Financial Statements (May 2011): This standard replaces the sections on consolidated financial statements in the current IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation Special Purpose Entities. In certain respects, the new standard provides significantly more guidance when it comes to determining whether an entity controls another entity. IFRS 10 also establishes the principles for preparation and presentation of consolidated financial statements when an entity controls one or more other entities. An examination will be conducted to establish resulting changes of the new standard. The standard is effective for financial periods beginning on or after 1 January 2013. The standard has not yet been adopted by the EU. IFRS 12, Disclosure of Interests in Other Entities (May 2011): IFRS 12 contains disclosure requirements on consolidated entities and entities that are unconsolidated but in which the reporting entity is involved. The standard contains increased requirements in terms of disclosure of minority interests, etc., and disclosure on entities in which the entity is involved but which are unconsolidated. Apart from an increase in the scope of information in notes, this standard is not expected to have any significant impact on the consolidated financial statements in future financial years. The standard is effective for financial periods beginning on or after 1 January 2013. The standard has not yet been adopted by the EU. IFRS 13, Fair Value Measurement (May 2011): This standard consolidates fair value measurement guidance from across various individual IFRSs into a single standard. IFRS 13 thus ensures a uniform definition of fair value across other standards and uniform guidance and disclosure requirements in terms of fair value measurement. ATP Alternative Investments K/S Annual Report 2012 15
This standard is not expected to have any significant impact on the financial statements in future financial years. The standard is effective for financial periods beginning on or after 1 January 2013. The standard has not yet been adopted by the EU. IFRS 9, Financial Instruments: Classification and Measurement (Financial Liabilities) (October 2010): The revised IFRS 9 adds provisions on classification and measurement of financial liabilities and derecognition. Most of the provisions of IAS 39 on recognition and measurement of financial liabilities are transferred to IFRS 9 unchanged. However, IFRS 9 contains the following amendments to the provisions of IAS 39: The exception in IAS 39 under which derivatives related to unquoted equity instruments could, in some cases, be measured at cost, is eliminated. The standard is not expected to have any significant impact on the consolidated financial statements in future financial years. IFRS 9 is effective for financial periods beginning on or after 1 January 2013. The standard has not yet been adopted by the EU. IFRS 9, Financial Instruments: Classification and Measurement (Financial Assets) (November 2009): IFRS 9 deals with the accounting treatment of financial assets in relation to classification and measurement. In accordance with IFRS 9, the classifications of 'held to maturity' and 'available for sale' are eliminated. A new, optional classification is established for equity instruments that are not held with a view to sale and which, on initial recognition, are classified under 'fair value with value adjustment through other comprehensive income'. In future, financial assets are thus to be classified either as 'measurement at amortised cost' or 'fair value through results' or where equity instruments are concerned that comply with the criteria to this effect as 'fair value through other comprehensive income'. The implementation of IFRS 9 will not result in changes to the current accounting policies under which all financial assets are recognised at fair value in the income statement or at amortised cost. The standard is effective for financial periods beginning on or after 1 January 2013. The standard has not yet been adopted by the EU. Note 2 Accounting policies The annual report of ATP Alternative Investments K/S for 2012 has been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU. The annual report is based on the historical cost convention. In the preparation of the annual report, the Board of Directors and the Manager list a number of assumptions that affect the application of the accounting policies and the carrying amounts of assets and liabilities, as well as income and expenses. Note 3 specifies the accounting estimates and assessments considered to be material in the preparation of the annual report. Subsequently, assets and liabilities are measured as described below for each individual item. Foreign-currency translation Functional currency and presentation currency The annual report is presented in Danish kroner (DKK), the functional currency and presentation currency of ATP Alternative Investments K/S. Translation of transactions and amounts The functional currency is the currency used in the primary financial environment in which ATP Alternative Investments K/S operates. Transactions in currencies other than the functional currency are foreign-currency ATP Alternative Investments K/S Annual Report 2012 16
transactions. Foreign-currency transactions are translated into Danish kroner at the exchange rate prevailing at the transaction date. Investments, receivables and payables in foreign currencies are translated into Danish kroner at the exchange rate prevailing at the balance-sheet date. Realised and unrealised exchange gains and losses are included in the income statement under Market-value adjustments. Financial instruments Classification On initial recognition, financial assets are classified into the following categories: Financial assets recognised at fair value in the income statement (chosen) On initial recognition, financial liabilities are classified into the following categories: Other financial liabilities, which are measured at amortised cost Fair-value option financial assets and liabilities recognised at fair value in the income statement (chosen) In accordance with the fair-value option of IAS 39, the following assets are recognised at fair value in the income statement: Equity investments Segment information The company's activities can be divided into one business area: Investment activities. The segment complies with the company's risk management, as well as its policy of corporate governance and internal financial management. No further segment information is provided as all information appears from the company's income statement and balance sheet. Related-party transactions Related-party transactions are conducted at arm s length or on a cost-recovery basis. Transactions are subject to contractual agreement between the Group's entities. Income statement Recognition of income Income is recognised in the income statement as it accrues, including value adjustments of financial assets and liabilities which are measured at fair value or amortised cost. All expenses incurred to generate the earnings for the year are also recognised in the income statement. Interest income and dividends, etc. include interest for the period on securities and dividends on equity investments less foreign dividend taxes. Interest income on interest-bearing financial instruments is recognised in the income statement using the effective rate of interest method. Interest expenses include the interest expenses for the period related to loans from the general partner. ATP Alternative Investments K/S Annual Report 2012 17
Market-value adjustments include value adjustments of equity investments for the period, as well as realised gains and losses on the sale of equity investments. Exchange-rate adjustments are also included. Investment-activity expenses include expenses incurred during the year in connection with the company's investment activities. Fees to ATP for the administrative work performed by ATP on behalf of the company are also included. The limited partnership is not independently liable to tax, as its results are included in the limited partner's and the general partner's taxable income. Balance sheet Cash and cash equivalents Cash and cash equivalents are recognised and measured at nominal value in the balance sheet. Equity investments Purchase and sale of equity investments are recognised on the trade date. On initial recognition, i.e. the date of entering into the contractual arrangement, equity investments are recognised at fair value. Subsequent to initial recognition, they are also measured at fair value. For equity investments that are traded in a market, the official market price is used. Private equity investments are measured on the basis of the latest market price either in the form of a round of capital increases or a partial sale, based on the value of comparable companies and using traditional valuation methods. The fair-value determination represents ATP Alternative Investments K/S's most objective estimate of the current fair value of equity investments, based on the most unambiguous and uniform guidelines possible and, to some extent, supported by management estimates. Adjustment of the fair value of equity investments is recognised in the income statement under 'Market-value adjustments' on an ongoing basis. Liabilities Liabilities, comprising payables to subsidiaries and other payables, are measured at amortised cost, essentially equivalent to nominal value. Cash flow statement ATP Alternative Investments K/S's cash flow statement shows the cash flows for the year, broken down by operating, investing and financing activities; changes for the year in cash and cash equivalents; and the company's cash and cash equivalents at the beginning and end of the year. Cash flows from operating activities are presented directly and calculated as interest received and market-value adjustments realised less payments to suppliers. Cash flows from investing activities include purchases and sales of equity investments for the financial year. ATP Alternative Investments K/S Annual Report 2012 18
Cash flows from financing activities include investments and distributions to the limited partnership's limited partners and general partner. Cash and cash equivalents include demand deposits. Note 3 Significant accounting estimates In the preparation of the annual report in accordance with generally accepted accounting principles, the Board of Directors and the Manager make estimates and assumptions that affect the reported amounts of assets and liabilities. The Board of Directors and the Manager base their estimates on historical experience and on various other factors that are believed to be reasonable and relevant under the circumstances. The Board of Directors and the Manager consider the following estimates and related assessments to be significant in the preparation of the financial statements. Fair value of financial instruments The fair value of financial instruments, including financial derivatives, for which listed market values are not available, is based on the best information available under the circumstances. The accounting methods include discounting of future cash flows and assessment of underlying market conditions. Assumptions of interest rates, risk premiums, volatility, default and prepayments and other information are included in the use of these methods. Contingencies Decisions regarding the accounting treatment of contingent assets and liabilities are based on an assessment of the expected outcome of the applicable contingency. If it is almost certain that a future economic benefit will flow to ATP Alternative Investments K/S, the asset and the related income are recognised. If, on the other hand, it is probable that a future economic benefit will flow from ATP Alternative Investments K/S when discharging the liability, the contingency is recognised as a liability. Where it is not possible to estimate an amount with sufficient certainty, or it is not possible to estimate the outcome of a given matter, information to this effect will be provided. Decisions relating to such matters may generate realised profits or losses in future accounting periods that exceed the amounts recognised in the financial statements. ATP Alternative Investments K/S Annual Report 2012 19
Note 4 Market-value adjustments In DKK '000 2012 2011 Unrealised capital gains, equity investments 1,131,397 566,263 Unrealised exchange gains, equity investments 78,012 184,871 Exchange gains, cash and cash equivalents 2,809 0 Total exchange gains 1,212,218 751,134 Exchange losses, forward transactions with ATP -68,444-144,039 Realised exchange losses, investments -680,752-351,073 Exchange losses, cash and cash equivalents 0-8,854 Total exchange losses -749,196-503,966 Market-value adjustments, net 463,022 247,168 Note 5 Interest income and dividends, etc., and interest expenses In DKK '000 2012 2011 Forward premiums, forward-exchange contracts 0 20,282 Interest income, cash and cash equivalents 5 45 Dividends, equity investments 635,064 362,728 Total interest income and dividends, etc. 635,069 383,055 Forward premiums, forward-exchange contracts -24,643 0 Interest expenses, subsidiaries -120-122 Total interest expenses -24,763-122 Note 6 Investment-activity expenses No salary or remuneration was paid to the Manager and the Board of Directors in 2011 and 2012. Note 7 Equity investments In DKK '000 2012 2011 Unlisted foreign equity investments 4,710,588 4,055,031 Carrying amount at 31 December 4,710,588 4,055,031 No equity investments are lent at 31 December 2012. ATP Alternative Investments K/S Annual Report 2012 20
Note 8 Financial assets recognised at fair value over the income statement (chosen) In DKK '000 2012 2011 Equity investments 4,710,588 4,055,031 Carrying amount at 31 December 4,710,588 4,055,031 Note 9 Loans and other payables In DKK '000 2012 2011 Payables to subsidiaries 2,210 217,883 Carrying amount at 31 December 2,210 217,883 Note 10 Contingent liabilities In DKK '000 2012 2011 Investment commitments, credit funds 3,264,903 4,855,121 Investment commitments, credit funds 3,264,903 4,855,121 ATP Alternative Investments K/S Annual Report 2012 21
Note 11 Related-party transactions ATP Alternative Investments K/S's related parties are the parent company ATP and enterprises having significant influence on ATP Alternative Investments K/S, i.e. the general partnership company ATP TIM GP ApS. Members of ATP Alternative Investments K/S's Board of Directors, Manager and their close family members are also regarded as related parties. Related parties are also enterprises in which these persons have significant interests. ATP Alternative Investments K/S has entered into the following related-party transactions: In DKK '000 2012 ATP Alternative Investments K/S has entered into the following related-party transactions: Sale Purchase Receivables Payables ATP 0 964 94,476-1,989 ATP TIM GP ApS 121 0 0-221 Total related-party transactions 121 964 94,476-2,210 In DKK '000 2011 ATP Alternative Investments K/S has entered into the following related-party transactions: Sale Purchase Receivables Payables ATP 0 700 263-217,783 ATP TIM GP ApS 122 0 0-100 Total related-party transactions 122 700 263-217,883 Purchases from ATP comprise a number of administrative functions, including portfolio management, accounting, IT operations and development, as well as staff administration, etc. Purchases from ATP also include currency he undertaken by ATP on behalf of ATP Alternative Investments K/S. All transactions with ATP regarding administrative functions are conducted on a cost-recovery basis. The transactions are subject to contractual agreement with ATP. Transactions with the general partnership company comprise loans entered into and interest accrued and settled on an arm's length basis (market terms). Remuneration details for the Board of Directors and the Manager are set out in note 6. ATP Alternative Investments K/S Annual Report 2012 22
Note 12 Market risks ATP Alternative Investments K/S's market risks are linked to currency and equity risks. As ATP Alternative Investments K/S only makes equity investments, currency and equity risks are the only market risks reflected in ATP Alternative Investments K/S's balance sheet. Equity risks ATP Alternative Investments K/S makes investments in funds. Accordingly, the value of ATP Alternative Investments K/S is subject to market risks associated with the underlying investments. Management of the investments in the funds involves a number of restrictions establishing frameworks for e.g. diversification by domicile and industry. Currency risks ATP Alternative Investments K/S is denominated in Danish kroner (DKK). As the company invests in assets directly or indirectly denominated in currencies other than Danish kroner, the value of the company depends on movements in the exchange rate of the Danish krone against other currencies. ATP Alternative Investments K/S hedges the direct currency exposure of investments by entering into forward-exchange contracts with ATP. ATP Alternative Investments K/S's currency exposure in USD is equivalent to 3 per cent of the market value of its equity investments at 31 December 2012. Note 13 Credit risks Counterparty risks As part of its hedging of currency risks, ATP Alternative Investments K/S enters into forward-exchange contracts with ATP. The company has concluded framework agreements for these transactions, allowing netting across transactions in case of default. Collateral is not provided for the net values of exposures. Moreover, ATP Alternative Investments K/S's bank deposits are subject to credit risk, which is assessed as being moderate. Maximum credit exposure at 31 December 2012 In DKK '000 Unlisted financial derivatives (after provision of collateral) 94,476 Cash and cash equivalents 8,032 ATP Alternative Investments K/S Annual Report 2012 23
Note 14 Liquidity risks Liquidity risk is the risk that ATP Alternative Investments K/S will not have sufficient funds available to meet its contractual obligations when they fall due. ATP, the company's limited partner, is a recognised institutional investor and subject to supervision by the Danish Financial Supervisory Authority. The general partner's capital base is fully paid, and the unallocated capital is deposited as cash or cash equivalents with a recognised US bank. Therefore, the liquidity risk is considered to be very modest. In the table below, the company's financial assets and liabilities are broken down by contractual maturity. In DKK '000 2012 Financial assets 0-1 years 1-5 years > 5 years Total Equity investments 4,710,588 0 0 4,710,588 Cash and cash equivalents 8,032 0 0 8,032 Receivables from subsidiaries 4,677,583 0 0 4,677,583 Total 9,396,203 0 0 9,396,203 Financial liabilities 0-1 years 1-5 years > 5 years Total Payables to subsidiaries 4,588,714 0 0 4,588,714 Total 4,588,714 0 0 4,588,714 In DKK '000 2011 Financial assets 0-1 years 1-5 years > 5 years Total Equity investments 4,055,031 0 0 4,055,031 Cash and cash equivalents 1,507 0 0 1,507 Receivables from subsidiaries 3,986,474 0 0 3,986,474 Total 8,043,012 0 0 8,043,012 Financial liabilities 0-1 years 1-5 years > 5 years Total Payables to subsidiaries 4,201,573 0 0 4,201,573 Total 4,201,573 0 0 4,201,573 ATP Alternative Investments K/S Annual Report 2012 24
Note 15 Fair-value disclosure Financial instruments are recognised at fair value or amortised cost in the balance sheet, cf. the accounting policies. In the determination of fair value, ATP Alternative Investments K/S applies the IFRS 7 fair-value hierarchy of three levels. In DKK '000 2012 Quoted Observable Unobservable prices inputs inputs Assets Level 1 Level 2 Level 3 Total Equity investments 0 4,710,588 0 4,710,588 Total 0 4,710,588 0 4,710,588 In DKK '000 2011 Quoted Observable Unobservable prices inputs inputs Assets Level 1 Level 2 Level 3 Total Equity investments 0 4,055,031 0 4,055,031 Total 0 4,055,031 0 4,055,031 Note 16 Long-term and short-term assets and liabilities In DKK '000 2012 2011 Short-term assets: Cash and cash equivalents 8,032 1,507 Equity investments 4,710,588 4,055,031 Receivables from subsidiaries 94,476 263 Total short-term assets 4,813,096 4,056,801 Total assets 4,813,096 4,056,801 Long-term liabilities: Equity 4,810,886 3,838,918 Total long-term liabilities 4,810,886 3,838,918 Short-term liabilities: Payables to subsidiaries 2,210 217,883 Total short-term liabilities 2,210 217,883 Total liabilities 4,813,096 4,056,801 ATP Alternative Investments K/S Annual Report 2012 25