Partners Group Global Real Estate Fund (AUD) ARSN 611 351 627 Annual report
ARSN 611 351 627 Annual report Contents Directors' report Auditor's independence declaration Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Directors' declaration Independent auditor's report to the members of Partners Group Global Real Estate Fund (AUD) This annual report covers Partners Group Global Real Estate Fund (AUD) as an individual entity. The Responsible Entity of Partners Group Global Real Estate Fund (AUD) is Equity Trustees Limited (ABN 46 004 031 298) (AFSL 240975). The Responsible Entity's registered office is: Level 1, 575 Bourke Street Melbourne, VIC 3000. 1
Directors' report Directors' report The directors of Equity Trustees Limited, the Responsible Entity of Partners Group Global Real Estate Fund (AUD) (the "Fund"), present their report together with the financial statements of the Fund for the period 30 March 2016 to 30 June 2017. Principal activities The Fund was constituted on 16 March 2016, registered with the Australian Securities and Investments Commission (ASIC) on 30 March 2016 and commenced operations on 28 April 2017. The objective of the Fund is to provide investors with attractive long-term capital appreciation by investing in a globally diversified portfolio of real estate and related investments by investing in Partners Group Global Real Estate FCP (the "Underlying Fund") based in Luxembourg in accordance with the Product Disclosure Statement and the provisions of the Fund's Constitution. The Fund did not have any employees during the period. There were no significant changes in the nature of the Fund's activities during the period. The various service providers of the Fund are detailed below: Service Responsible Entity Investment Manager Investment Adviser Custodian Statutory Auditor Administrator and Registrar Provider Equity Trustees Limited Partners Group Management IV Limited Partners Group AG The Northern Trust Company PricewaterhouseCoopers Link Fund Solutions Pty Limited (formerly White Outsourcing Pty Limited) Directors The following persons held office as directors of Equity Trustees Limited during or since the end of the period and up to the date of this report: Philip D Gentry (Chairman) Harvey H Kalman Martin G Walsh (retired 9 June 2017) Geoffory R Rimmer (retired 4 October 2016) Ian C Westley (appointed 12 December 2016) Review and results of operations During the period, the Fund invested its funds in accordance with the Product Disclosure Statement and the provisions of the Fund's Constitution. The Fund's performance was 1.5% (net of fees) for the period 30 March 2016 to 30 June 2017. The Fund does not operate against a benchmark. The performance of the Fund, as represented by the results of its operations, was as follows: For the period 30 March 2016 to 30 June 2017 Operating profit/(loss) before finance costs attributable to unit holders ($'000) 110 Distributions Distributions paid and payable ($'000) 49 Distributions (cents per unit) 0.6550 2
Directors' report Significant changes in state of affairs Geoffory R Rimmer resigned as a director of Equity Trustees Limited on 4 October 2016. Ian C Westley was appointed as a director of Equity Trustees Limited on 12 December 2016. Martin G Walsh resigned as a director of Equity Trustees Limited on 9 June 2017. In the opinion of the directors, there were no other significant changes in the state of affairs of the Fund that occurred during the financial period. Matters subsequent to the end of the financial period No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may have a significant effect on: (i) (ii) (iii) the operations of the Fund in future financial years; the results of those operations in future financial years; or the state of affairs of the Fund in future financial years. Likely developments and expected results of operations The Fund will continue to be managed in accordance with the investment objectives and guidelines as set out in the Product Disclosure Statement and the provisions of the Fund's Constitution. The results of the Fund's operations will be affected by a number of factors, including the performance of investment markets in which the Fund invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Indemnification and insurance of officers No insurance premiums are paid for out of the assets of the Fund in regards to insurance cover provided to the officers of Equity Trustees Limited. So long as the officers of Equity Trustees Limited act in accordance with the Fund's Constitution and the Law, the officers remain indemnified out of the assets of the Fund against losses incurred while acting on behalf of the Fund. Indemnification of auditor The auditor of the Fund is in no way indemnified out of the assets of the Fund. Fees paid to and interests held in the Fund by the Responsible Entity and its associates Fees paid to the Responsible Entity and its associates out of Fund property during the period are disclosed in Note 16 to the financial statements. No fees were paid out of Fund property to the directors of the Responsible Entity during the period. The number of interests in the Fund held by the Responsible Entity and its associates as at the end of the financial period are disclosed in Note 16 to the financial statements. Interests in the Fund The movement in units on issue in the Fund during the period is disclosed in Note 9 to the financial statements. The value of the Fund's assets and liabilities is disclosed in the statement of financial position and derived using the basis set out in Note 2 to the financial statements. Environmental regulation The operations of the Fund are not subject to any particular or significant environmental regulations under Commonwealth, State or Territory law. 3
Directors' report Rounding of amounts to the nearest dollar Amounts in the Directors' report have been rounded to the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191, unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. This report is made in accordance with a resolution of the directors of Equity Trustees Limited. Philip D Gentry Chairman Melbourne 12 September 2017 4
Auditor s Independence Declaration As lead auditor for the audit of Partners Group Global Real Estate Fund (AUD) for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been: (a) (b) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. George Sagonas Partner PricewaterhouseCoopers Melbourne 12 September 2017 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
Statement of comprehensive income Statement of comprehensive income For the period 30 March 2016 to 30 June 2017 Note $'000 Investment income Interest income 11 Net gains/(losses) on financial instruments held at fair value through profit or loss 5 101 Expense reimbursement income 16 69 Net foreign exchange gain/(loss) 1 Rebate income 21 Total investment income/(loss) 203 Expenses Management fees 16 35 Administration fees 12 Remuneration of auditor 40 Other expenses 6 Total expenses 93 Operating profit/(loss) 110 Finance costs attributable to unit holders Distributions to unit holders 10 (49) (Increase)/decrease in net assets attributable to unit holders 9 (61) Profit/(loss) for the period - Other comprehensive income - Total comprehensive income for the period - The above statement of comprehensive income should be read in conjunction with the accompanying notes. 6
Statement of financial position As at 30 June 2017 Statement of financial position As at 30 June 2017 Note $'000 Assets Cash and cash equivalents 11 5,086 Receivables 13 107 Financial assets held at fair value through profit or loss 6 7,660 Total assets 12,853 Liabilities Distributions payable 10 49 Payables 14 5,143 Payable for units purchased 50 Total liabilities (excluding net assets attributable to unit holders) 5,242 Net assets attributable to unit holders - liability 9 7,611 The above statement of financial position should be read in conjunction with the accompanying notes. 7
Statement of changes in equity Statement of changes in equity For the period 30 March 2016 to 30 June 2017 $'000 Total equity at the beginning of the period - Profit/(loss) for the period - Other comprehensive income - Total comprehensive income - Transactions with owners in their capacity as owners - Total equity at the end of the period - Under Australian Accounting Standards, net assets attributable to unit holders are classified as a liability rather than equity. As a result, there was no equity at the start or the end of the period. The above statement of changes in equity should be read in conjunction with the accompanying notes. 8
Statement of cash flows Statement of cash flows For the period 30 March 2016 to 30 June 2017 Note $'000 Cash flows from operating activities Purchase of financial instruments held at fair value through profit or loss (7,509) Interest income received 1 Other expenses paid (7) Net cash inflow/(outflow) from operating activities 12(a) (7,515) Cash flows from financing activities Proceeds from applications by unit holders 12,600 Net cash inflow/(outflow) from financing activities 12,600 Net increase/(decrease) in cash and cash equivalents 5,085 Effects of foreign currency exchange rate changes on cash and cash equivalents 1 Cash and cash equivalents at the end of the period 11 5,086 The above statement of cash flows should be read in conjunction with the accompanying notes. 9
Contents 1 General information 2 Summary of significant accounting policies 3 Financial risk management 4 Fair value measurement 5 Net gains/(losses) on financial instruments held at fair value through profit or loss 6 Financial assets held at fair value through profit or loss 7 Derivative financial instruments 8 Structured entities 9 Net assets attributable to unit holders 10 Distributions to unit holders 11 Cash and cash equivalents 12 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities 13 Receivables 14 Payables 15 Remuneration of auditor 16 Related party transactions 17 Events occurring after the reporting period 18 Contingent assets and liabilities and commitments 10
1 General information These financial statements cover Partners Group Global Real Estate Fund (AUD) (the "Fund") as an individual entity. The Fund is an Australian registered managed investment scheme which was constituted on 16 March 2016 and commenced operations on 28 April 2017. The Fund will terminate in accordance with the provisions of the Fund's Constitution or by law. The Responsible Entity of the Fund is Equity Trustees Limited (ABN 46 004 031 298) (AFSL 240975) (the "Responsible Entity"). The Responsible Entity's registered office is Level 1, 575 Bourke Street, Melbourne, VIC 3000. The financial statements are presented in Australian currency unless otherwise noted. The objective of the Fund is to provide investors with attractive long-term capital appreciation by investing in a globally diversified portfolio of real estate and related investments by investing in Partners Group Global Real Estate FCP (the "Underlying Fund") based in Luxembourg. The financial statements were authorised for issue by the directors on the date the Directors' declaration was signed. The directors of the Responsible Entity have the power to amend and reissue the financial statements. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to the period presented, unless otherwise stated in the following text. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 in Australia. The Fund is a for-profit entity for the purpose of preparing the financial statements. The financial statements are prepared on the basis of fair value measurement of assets and liabilities, except where otherwise stated. The statement of financial position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and do not distinguish between current and non-current. All balances are expected to be recovered or settled within 12 months, except for investments in financial assets and net assets attributable to unit holders. The Fund manages financial assets at fair value through profit or loss based on the economic circumstances at any given point in time, as well as to meet any liquidity requirements. Private market investments are generally illiquid long-term investments that do not display the liquidity or transparency characteristics found in listed securities. Due to these uncertainties and other characteristics of private market investments, the value of such investments may not be readily realisable within 12 months. In the case of net assets attributable to unit holders, the units are redeemable on demand at the unit holder s option, subject to the redemption restrictions of the Underlying Fund. However, holders of these instruments typically retain them for the medium to long term. As such, the amount expected to be settled within 12 months cannot be reliably determined. (i) Compliance with International Financial Reporting Standards (IFRS) The financial statements of the Fund also comply with IFRS as issued by the International Accounting Standards Board. 11
2 Summary of significant accounting policies (a) Basis of preparation (ii) New and amended standards adopted by the Fund The amendments to AASB 107 Statement of Cash Flows have been early adopted. The Fund has elected to adopt the amendments made by AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 107 early. This amendment requires disclosure of changes in liabilities arising from financing activities. The relevant information is provided in Note 9. There are no other new standards, interpretations or amendments to existing standards that are effective for the first time for the financial period beginning 1 July 2016 that have a material impact on the Fund. (iii) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2017 reporting period and have not been early adopted by the Fund. The directors' assessment of the impact of these new standards (to the extent relevant to the Fund) and interpretations is set out below: AASB 9 Financial Instruments (and applicable amendments) (effective from 1 January 2018) AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting and impairment. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition, classification and measurement of the Fund s financial instruments as they are carried at fair value through profit or loss. The derecognition rules have not changed from the previous requirements, and the Fund does not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Fund s investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Fund. The Fund has not yet decided when to adopt AASB 9. AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018) AASB 15 will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards. The Fund's main sources of income are interest and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of AASB 15 to have a significant impact on the Fund's accounting policies or the amounts recognised in the financial statements. The Fund has not yet decided when to adopt AASB 15. There are no other standards that are not yet effective and that are expected to have a material impact on the Fund in the current or future reporting periods and on foreseeable future transactions. (b) Financial instruments (i) Classification The Fund's investments are classified as held at fair value through profit or loss. They comprise: Financial instruments held for trading These are investments in derivative financial instruments such as forward contracts. The Fund does not designate any derivatives as hedges in a hedging relationship. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and liabilities that are not held for trading purposes and which may be sold. These are investments in an unlisted mutual investment fund based in Luxembourg. 12
2 Summary of significant accounting policies (b) Financial instruments (i) Classification Financial assets and liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Fund's documented investment strategy as outlined in the Product Disclosure Statement. The Fund's policy is for the Investment Manager to evaluate the information about these financial instruments on a fair value basis together with other related financial information. (ii) Recognition and derecognition The Fund recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in the fair value of the financial assets or financial liabilities from this date. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or the Fund has transferred substantially all the risks and rewards of ownership. Financial liabilities are derecognised when the obligation under the liabilities are discharged. (iii) Measurement At initial recognition, the Fund measures financial assets at its fair value. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of comprehensive income. Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets or liabilities at fair value through profit or loss category are presented in the statement of comprehensive income in the period in which they arise. For further details on how the fair value of financial instruments is determined, please see Note 4 to the financial statements. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when the Fund has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. As at the end of the reporting period, there are no financial assets or liabilities offset or with the right to offset in the statement of financial position. (c) Net assets attributable to unit holders Units are redeemable at the unit holders' option, however, applications and redemptions may be suspended by the Responsible Entity if it is in the best interests of the unit holders. The units are classified as financial liabilities as the Fund is required to distribute its distributable income in accordance with the Fund's Constitution. The units can be put back to the Fund at any time for cash based on the redemption price. The units are carried at the redemption amount that is payable at the reporting date if the holder exercises the right to put the units back to the Fund. (d) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as trading of these securities represent the Fund's main income generating activity. 13
2 Summary of significant accounting policies (e) Investment income Interest income on cash and cash equivalents is recognised in the statement of comprehensive income on an accruals basis. Changes in fair value of financial instruments held at fair value through profit or loss are recorded in accordance with the policies described in Note 2(b) to the financial statements. Rebate income represents investment management fees from the Underlying Fund waived for the benefit of the Fund. Rebate income is recognised in the statement of comprehensive income on an accruals basis. Other income is recognised in the statement of comprehensive income on an accruals basis. (f) Expenses All expenses are recognised in the statement of comprehensive income on an accruals basis. (g) Income tax Under current legislation, the Fund is not subject to income tax as unit holders are presently entitled to the income of the Fund. The benefits of any imputation credits and foreign tax paid are passed on to unit holders. (h) Distributions The Fund distributes its distributable income in accordance with the Fund's Constitution, to unit holders by cash or reinvestment. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unit holders. (i) Increase/decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. Movements in net assets attributable to unit holders are recognised in the statement of comprehensive income as finance costs. (j) (i) Foreign currency translation Functional and presentation currency Balances included in the Fund's financial statements are measured using the currency of the primary economic environment in which it operates (the 'functional currency'). This is the Australian dollar, which reflects the currency of the economy in which the Fund competes for funds and is regulated. The Australian dollar is also the Fund's presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The Fund does not isolate that portion of unrealised gains or losses on financial instruments that are measured at fair value through profit or loss and which is due to changes in foreign exchange rates. Such fluctuations are included with the net gains/(losses) on financial instruments at fair value through profit or loss. (k) Receivables Receivables may include amounts for interest. Where applicable, interest is accrued on a monthly basis. Amounts are generally received within 30 days of being recorded as receivables. Collectability of receivables is reviewed on an ongoing basis. Receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. 14
2 Summary of significant accounting policies (l) Payables Payables include liabilities and accrued expenses owed by the Fund which are unpaid as at the end of the reporting period. As the Fund has a contractual obligation to distribute its distributable income, a separate distribution payable is recognised in the statement of financial position as at the end of each reporting period where this amount remains unpaid as at the end of the reporting period. Distributions declared effective 30 June in relation to unit holders who have previously elected to reinvest distributions are recognised as reinvested effective 1 July of the following financial period. (m) Applications and redemptions Unit application and redemption prices are determined by reference to the net assets of the Fund divided by the number of units on issue, adjusted for buy/sell spreads where applicable. (n) Goods and Services Tax (GST) The investment portfolio composition is 100% offshore investments. As the Investment Manager is offshore domiciled, the investment management fee will be exclusive of GST. All other expenses will incur GST at 10% but will be entitled to a reduced input tax credit rate of at least 55%. Expenses have been recognised in the statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Amounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the statement of financial position. Cash flows relating to GST are included in the statement of cash flows on a gross basis. (o) Use of estimates The Fund makes estimates and assumptions that affect the reported amounts of assets and liabilities within the current and next financial period. Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For more information on how fair value is calculated please refer to Note 4 to the financial statements. (p) Comparative period The Fund was constituted on 16 March 2016, registered with Australian Securities and Investments Commission (ASIC) on 30 March 2016 and commenced operations on 28 April 2017. The reporting period covers the period 30 March 2016, being the registration date, to 30 June 2017. Hence, there is no comparative information. (q) Rounding of amounts The Fund is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 relating to the rounding off of amounts in the financial statements. Amounts in the financial statements have been rounded to the nearest thousand dollars unless otherwise indicated. 3 Financial risk management The Fund's activities expose it to a variety of financial risks including market risk (which incorporates price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Fund's overall risk management programme focuses on ensuring compliance with the Fund's Product Disclosure Statement and the investment guidelines of the Fund. It also seeks to maximise the returns derived for the level of risk to which the Fund is exposed and seeks to minimise potential adverse effects on the Fund s financial performance. The Fund's policy allows it to use derivative financial instruments in managing its financial risks. All securities investments present a risk of loss of capital. The maximum loss of capital on mutual investment funds is limited to the fair value of those positions. 15
3 Financial risk management The investments of the Fund, and associated risks, are managed by a specialist Investment Manager, Partners Group Management IV Limited ("Partners Group"), under an Investment Management Agreement ('IMA') approved by the Responsible Entity, and containing the investment strategy and investment guidelines of the Fund, consistent with those stated in the Product Disclosure Statement. The Fund invests exclusively in the Partners Group Global Real Estate FCP, an open-ended mutual investment fund based in Luxembourg. The Underlying Fund invests in a broad range of private real estate investment opportunities. The objective of the Fund is to provide investors with attractive long-term capital appreciation by investing in a globally diversified portfolio of real estate and related investments by investing in the Underlying Fund. The Fund uses different methods to measure different types of risk to which it is exposed. These methods are explained below. (a) Market risk (i) Price risk The Fund is exposed to price risk on its investment in the Underlying Fund. Price risk arises from investments held by the Fund for which prices in the future are uncertain. The Fund has a significant concentration of risk arising from its exclusive investment in the Underlying Fund. As at 30 June 2017, the Fund's investment in the Underlying Fund represents 98% of the Fund's financial assets held at fair value through profit or loss. Financial assets at fair value through profit or loss held directly or indirectly bear a risk of loss of capital. The Investment Manager moderates this through a careful selection of investments within specified limits. The Underlying Fund's investments are monitored on a regular basis by the Underlying Fund's Investment Adviser and are reviewed on a quarterly basis by the General Partner. The Underlying Fund checks its performance against the FTSE EPRA / NAREIT Global Real Estate Index EUR which it uses as its primary benchmark, given the current weighting of the portfolio. The Program checks on a regular basis the weightings of the index, its composition, price development and volatility. The annual volatility of the Underlying Fund's benchmark is shown for the period from 1 January 2001 to the relevant period end by using the monthly data. Under the assumption that financial assets at fair value through profit or loss fluctuate with the annual volatility the value and the result of such assets, if any, would be impacted by the values shown which could be either higher or lower. The table at Note 3(b) summarises the sensitivities of the Fund's assets and liabilities to price risk. The analysis is based on the assumption that the markets in which the Fund invests move by +/- 10%. (ii) Foreign exchange risk The Fund operates internationally and holds both monetary and non-monetary assets denominated in currencies other than the Australian dollar. Foreign exchange risk arises as the value of monetary securities denominated in other currencies will fluctuate due to changes in exchange rates. The foreign exchange risk relating to non-monetary assets and liabilities is a component of price risk and not foreign exchange risk. The Investment Adviser's hedging committee meets on a quarterly basis to review the foreign currency exchange rate risk and decides on the use of derivative financial instruments such as forward currency contracts and option contracts to hedge certain exposures at its discretion. Furthermore, the Investment Adviser's risk management committee reviews the foreign currency exchange risk on a monthly basis and proposes changes to the actual hedging positions if necessary. 16
3 Financial risk management (a) Market risk (ii) Foreign exchange risk The table below summarises the fair value of the Fund's assets and liabilities, monetary and non-monetary, which are denominated in a currency other than the Australian dollar. As at 30 June 2017 US Dollar A$'000 Cash and cash equivalents 5,069 Financial assets held at fair value through profit or loss 7,519 Due to brokers - payables for securities sold (50) Net exposure 12,538 Net increase/(decrease) in exposure from forward currency contracts (10,042) Net exposure including forward currency contracts 2,496 (iii) Interest rate risk Interest rate risk management is undertaken by maintaining as close to a fully invested position as possible thus limiting the exposure of the Fund to interest rate risk. As the majority of the Fund's financial assets and liabilities are non-interest bearing, the impact of interest rate risk on net assets attributable to unit holders and operating profit/(loss) is not considered material. (b) Summarised sensitivity analysis The following table summarises the sensitivity of the Fund's operating profit/(loss) and net assets attributable to unit holders to market risks. The reasonably possible movements in the risk variables have been determined based on management's best estimate, having regard to a number of factors, including historical levels of changes in foreign exchange rates and the historical correlation of the Fund s investments with market volatility. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market movements resulting from changes in the performance of and/or correlation between the performances of the economies, markets and securities in which the Fund invests. As a result, historic variations in risk variables should not be used to predict future variances in the risk variables. Impact on operating profit/(loss)/ net assets attributable to unit holders Price risk Foreign exchange risk -10% +10% -10% +10% (MSCI Index) (MSCI Index) USD USD $'000 $'000 $'000 $'000 As at 30 June 2017 (766) 766 (502) 502 17
3 Financial risk management (c) Credit risk The Fund is exposed to credit risk, which is the risk that a counterparty will be unable to pay its obligations in full when they fall due, causing a financial loss to the Fund. The main concentration of credit risk, to which the Fund is exposed, arises from the Fund s investment in the Underlying Fund. The Fund is also exposed to counterparty credit risk on derivative financial instruments, cash and cash equivalents and other receivables. (i) Investment in the Underlying Fund The Fund has a significant concentration of credit risk that arises from its exposure to a single counterparty in relation to its investment in an unlisted mutual investment fund. The risk is managed by the Underlying Fund Manager and mitigated through investment diversification. The Underlying Fund Manager monitors investment diversification parameters as specified in the Product Disclosure Statement. (ii) Derivative financial instruments The Fund manages credit risk by only entering into agreements with credit worthy counterparties. (iii) Cash and cash equivalents The exposure to credit risk for cash and cash equivalents is low as all counterparties have a rating of AA- (as determined by the Standard and Poor's) or higher. (iv) Other The Fund is not materially exposed to credit risk on other financial assets. (v) Maximum exposure to credit risk The maximum exposure to credit risk before any credit enhancements at the end of each reporting period is the carrying amount of the financial assets. None of these assets are impaired nor past due but not impaired. (d) Liquidity risk Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. Liquidity risk also arises where the Program may not be able to meet the obligations as and when these fall due for settlement. The Fund is exposed to indirect liquidity risk via its investment in the Underlying Fund. The financial instruments of the Underlying Fund include investments in private market investments, which are not traded on an organised public market and which may be illiquid. As a result, the Underlying Fund may not be able to liquidate its investments in these instruments at an amount close to their fair value in order to meet liquidity requirements, or to respond to specific events such as deterioration in the credit worthiness of a particular private market investment. The Underlying Fund may hold both illiquid private market investments and liquid public investments that are listed in recognised stock exchanges. To manage liquidity risks during the lifetime of the investment program on its illiquid investments, the Underlying Fund adjusts its commitment strategy dynamically in order to meet targets and comply with any restrictions. In addition, the Investment Adviser continuously monitors the development of liquidity available and the outlook for the net cash flows of the Program based on a quarterly assessment utilising quantitative cash flow models and prevailing market inputs. In general, the Underlying Fund expects to maintain liquidity between 2.5% and 6.5% of subscriptions received in order to meet the requirements of both existing and potential underlying investments. The same requirements apply for other liquidity requirements arising from operations of the Fund. 18
3 Financial risk management (d) Liquidity risk Exposure to liquidity risk for the Fund may also arise from the requirement to meet monthly unit holder redemption requests or to fund foreign exchange related cash flow requirements. However, the ability to redeem from the Fund is subject to the redemption restrictions of the Underlying Fund. The Underlying Fund provides a monthly liquidity facility subject to gating that restricts redemptions to no more than 5% of the Underlying Fund's shares on issue at the end of the previous calendar quarter. It is also able to establish credit lines to borrow up to 25% of its assets; however borrowing within the Underlying Fund is only permitted for the purpose of satisfying withdrawal requests and managing cash-flow requirements relating to investments. In order to manage the Fund's overall liquidity, the Responsible Entity has the discretion to reject an application for units and to defer or adjust redemption of units if the exercise of such discretion is in the best interests of unit holders. The Fund did not reject or withhold any redemptions during 2017. While the Fund has been designed in a manner that seeks to provide monthly liquidity to investors, due to the illiquid nature of some of the underlying investments, there are limitations on the amount of liquidity that can be generated within short time-frames. The Underlying Fund's Investment Manager will therefore use a variety of techniques (including holding a portion of more liquid securities) in seeking to maintain a high investment level whilst providing a degree of liquidity. (i) Maturities of non-derivative financial liabilities All non-derivative liabilities of the Fund in the current period have maturities of less than one month. Units are redeemed on demand at the unit holder s option. However, the Responsible Entity does not envisage that the contractual maturity will be representative of the actual cash outflows, as holders of these instruments typically retain them for the medium to long term. (ii) Maturities of net settled derivative financial instruments The table below analyses the Fund s net settled derivative financial instruments based on their contractual maturity. The Fund may, at its discretion, settle financial instruments prior to their original contractual settlement date, in accordance with it s investment strategy, where permitted by the terms and conditions of the relevant instruments. As at 30 June 2017 Less than 1 month 1-6 months 6-12 months Over 12 months $'000 $'000 $'000 $'000 Net settled derivatives Forward currency contracts 141 - - - Total net settled derivatives 141 - - - 19
4 Fair value measurement The Fund measures and recognises financial assets and liabilities held at fair value through profit or loss on a recurring basis. The Fund has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period. AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The Fund values its investments in accordance with the accounting policies set out in Note 2 to the financial statements. (a) Fair value in an inactive or unquoted market (level 2) The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. These include the use of recent arm's length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Investments in an unlisted mutual investment fund are recorded at the redemption value per share as reported by the investment managers of such funds. The Fund may make adjustments to the value based on considerations such as: liquidity of the Investee Fund or its underlying investments, the value date of the net asset value provided, or any restrictions on redemptions and the basis of accounting. (b) Recognised fair value measurements The table below presents the Fund s financial assets measured and recognised at fair value as at 30 June 2017. As at 30 June 2017 Level 1 $'000 Financial assets Level 2 $'000 Level 3 $'000 Total $'000 Financial assets held for trading: Forward currency contracts - 141-141 Financial assets designated at fair value through profit or loss: Unlisted mutual investment fund - 7,519-7,519 Total financial assets - 7,660-7,660 (c) Transfers between levels Management's policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between levels in the fair value hierarchy at the end of the reporting period. (d) Financial instruments not carried at fair value The carrying value of receivables and payables are assumed to approximate their fair values. Net assets attributable to unit holders' carrying value does not differ from its fair value (deemed to be redemption price for individual units) due to no differences in valuation inputs. 20
5 Net gains/(losses) on financial instruments held at fair value through profit or loss Net gains/(losses) recognised in relation to financial assets held at fair value through profit or loss: For the period 30 March 2016 to 30 June 2017 $'000 Financial assets Net gain/(loss) on financial assets held for trading 141 Net gain/(loss) on financial assets designated as at fair value through profit or loss (40) Net gains/(losses) on financial assets held at fair value through profit or loss 101 Net realised gain/(loss) on financial assets held at fair value through profit or loss - Net unrealised gain/(loss) on financial assets held at fair value through profit or loss 101 Net gains/(losses) on financial assets held at fair value through profit or loss 101 Total net gains/(losses) on financial instruments held at fair value through profit or loss 101 6 Financial assets held at fair value through profit or loss As at 30 June 2017 $'000 Held for trading Forward currency contracts 141 Total held for trading 141 Designated at fair value through profit or loss Unlisted international equity trust 7,519 Total designated at fair value through profit or loss 7,519 Total financial assets held at fair value through profit or loss 7,660 21
7 Derivative financial instruments In the normal course of business the Fund enters into transactions in various derivative financial instruments which have certain risks. A derivative is a financial instrument or other contract which is settled at a future date and whose value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable. Derivative financial instruments require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. Derivative transactions include many different instruments such as forwards, futures and options. Derivatives are considered to be part of the investment process and the use of derivatives is an essential part of the Fund's portfolio management. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted and includes: hedging to protect an asset or liability of the Fund against a fluctuation in market values or to reduce volatility a substitution for trading of physical securities adjusting asset exposures within the parameters set in the investment strategy, and adjusting the duration of fixed interest portfolios or the weighted average maturity of cash portfolios. While derivatives are used for trading purposes, they are not used to gear (leverage) a portfolio. Gearing a portfolio would occur if the level of exposure to the markets exceeds the underlying value of the Fund. The Fund holds the following derivative instruments: (a) Forward currency contracts Forward currency contracts are primarily used by the Fund to economically hedge against foreign currency exchange rate risks on its non-australian dollar denominated trading securities. The Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed upon price on an agreed future date. The fair value of a forward contract that is not exchange traded is determined as a net present value of estimated future cash flows, discounted at appropriate market rates as at the valuation date. The Fund recognises a gain or loss equal to the change in fair value at the end of each reporting period. The Fund's derivative financial instruments at period-end are detailed below: As at 30 June 2017 Fair values Contractual/ notional Assets Liabilities $'000 $'000 $'000 Forward currency contracts 10,183 141 - Total 10,183 141 - Risk exposures and fair value measurements Information about the Fund's exposure to credit risk, foreign exchange, interest rate risk and about the methods and assumptions used in determining fair values is provided in Note 3 and 4 to the financial statements. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of derivative financial instruments disclosed above. 22
8 Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, and the relevant activities are directed by means of contractual arrangements. The Fund considers all investments in managed investment schemes (the "Schemes") to be structured entities. The Fund invests in Schemes for the purpose of capital appreciation and/or earning investment income. The exposure to investments in unrelated Schemes at fair value is disclosed in the following table: Fair value of investment 30 June 2017 $'000 Partners Group Global Real Estate FCP 7,519 Total unrelated Schemes 7,519 The fair value of the Schemes is included in financial assets held at fair value through profit or loss in the statement of financial position. The Fund s maximum exposure to loss from its interests in the Schemes is equal to the total fair value of its investments in the Schemes as there are no off-balance sheet exposures relating to any of the Schemes. Once the Fund has disposed of its shares in a Scheme, it ceases to be exposed to any risk from that Scheme. During the period ended 30 June 2017, total losses incurred on investments in the Schemes were $40,000. The Fund did not earn distribution income as a result of its interests in the Schemes. 9 Net assets attributable to unit holders Movements in the number of units and net assets attributable to unit holders during the period were as follows: Single Class For the period 30 March 2016 to 30 June 2017 30 March 2016 to 30 June 2017 Units '000 $'000 Opening balance - - Applications 7,550 7,550 Increase/(decrease) in net assets attributable to unit holders - 61 Closing balance 7,550 7,611 As stipulated within the Fund's Constitution, each unit represents a right to an individual unit in the Fund and does not extend to a right to the underlying assets of the Fund. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Fund. 23
9 Net assets attributable to unit holders Capital risk management The Fund considers its net assets attributable to unit holders as capital, notwithstanding that net assets attributable to unit holders are classified as a liability. The amount of net assets attributable to unit holders can change significantly on a monthly basis as the Fund is subject to monthly applications and redemptions at the discretion of unit holders. Applications and redemptions are reviewed relative to the liquidity of the Fund's underlying assets on a monthly basis by the Responsible Entity. Under the terms of the Fund's Constitution, the Responsible Entity has the discretion to reject an application for units and to defer or adjust a redemption of units if the exercise of such discretion is in the best interests of unit holders. 10 Distributions to unit holders The distributions declared during the year were as follows: For the period 30 March 2016 30 March 2016 to 30 June 2017 to 30 June 2017 $'000 CPU Distributions June (payable) 49 0.6550 Total distributions 49 0.6550 11 Cash and cash equivalents As at 30 June 2017 $'000 Cash at bank 5,086 Total cash and cash equivalents 5,086 These accounts are earning a floating interest rate of between 0.0% and 1.4% as at 30 June 2017. 24