Subsidiaries
Transactions between the Company and its fully consolidated subsidiaries, which are related parties of the Company, are eliminated on consolidation. Details of related party transactions between the Company and its subsidiaries are detailed below.
Management, administrative and secretarial arrangements
The Company has appointed 3i Investments plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, as investment manager of the Group. 3i Investments plc received a fee of £13 million (2014: £23 million) for this service.
The Company has appointed 3i plc, a wholly-owned subsidiary of the Company incorporated in England and Wales, to provide the Company with a range of administrative and secretarial services. 3i plc received a fee of £145 million (2014: £98 million) for this service.
Other subsidiaries
The Company borrows funds from, and lends funds to certain subsidiaries and pays and receives interest on the outstanding balances. The interest income that is included in the Company’s Statement of comprehensive income is £1 million (2014: £2 million) and the interest expense included is nil (2014: £1 million).
Key management personnel
The Group’s key management personnel comprise the members of the Executive Committee and the Board’s non-executive Directors. The following amounts have been included in respect of these individuals:
Statement of comprehensive income
Group 2015 £m Group 2014 (restated) £m
Salaries, fees, supplements and benefits in kind 5 5
Cash bonuses1 4 5
Carried interest and performance fees payable 17 10
Share-based payments 5 3
1 2014 charge restated to reflect cash bonus only. For further detail, see Directors’ remuneration report. No termination benefits were paid to Executive Directors during the year or the prior year.
Statement of financial position
Group 2015 £m Group 2014 £m
Bonuses and share-based payments 14 7
Carried interest and performance fees payable within one year 5 1 Carried interest and performance fees payable after one year 21 6
Carried interest paid in the year to key management personnel was £3 million (2014: £3 million).
UNCONSOLIDATED STRUCTURED ENTITIES
The application of IFRS 12 requires additional disclosure on the Group’s exposure to unconsolidated structured entities.
The Group has exposure to a number of unconsolidated structured entities as a result of its investment activities across its Private Equity, Infrastructure and Debt Management business lines. These structured entities fall into four categories, namely CLO’s, debt management warehouses, closed end limited partnerships (Private Equity and Infrastructure funds) and investments in certain portfolio investments. The nature, purpose and activities of these entities are detailed below along with the nature of risks associated with these entities and the maximum exposure to loss.
29 RELATED PARTIES AND INTERESTS IN OTHER ENTITIES CONTINUED
CLO structured entities
The Group manages CLO vehicles as part of its Debt Management business. These funds predominantly invest in senior secured loans and are financed by investors seeking credit rated, structured, investment returns.
The Group manages these funds, in return for a management fee. The Group also typically invests into the equity tranche of these funds. The Group’s attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals basis and performance fees are accrued when relevant performance hurdles are met.
The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:
Balance sheet line item of asset or liability
Carrying amount Maximum loss exposure £m Assets
£m Liabilities £m Net £m
Unquoted investments 119 – 119 119
Fee income receivable 7 – 7 7
Total 126 – 126 126
At 31 March 2015, the total CLO assets under management were £6.5 billion (2014: £5.8 billion). The Group earned dividend income of £16 million (2014: £8 million) and fee income of £30 million (2014: £7 million) during the year from CLO structured entities.
Warehouse structured entities
Ahead of future CLO fund launches, warehouse facilities are usually established to support the creation of senior secured debt portfolios. These entities are financed by the Group along with the bank appointed to operate the warehouse facility. The Group makes a commitment to the warehouse, typically taking the first loss position and is at risk for margin calls if the portfolio underperforms. The Group’s attributable stakes in these warehouses are held at fair value.
The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:
Balance sheet line item of asset or liability
Carrying amount Maximum loss exposure £m Assets £m Liabilities £m Net £m Unquoted investments 43 – 43 43 Total 43 – 43 43
At 31 March 2015, the total net asset value of the warehouse entities was £43 million (2014: £17 million). The Group earned interest income of £6 million (2014: £2 million) during the year from warehouse structured entities.
Closed end limited partnerships
The Group manages a number of closed end limited partnerships, which are primarily Private Equity or Infrastructure focused, in return for a management fee. The purpose of these partnerships is to invest in Private Equity or Infrastructure investments for capital appreciation. Limited Partners, which in some cases may include the Group, finance these entities by committing capital to them and cash is drawn down or distributed for financing investment activity.
The Group’s attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals basis and carried interest is accrued when relevant performance hurdles are met.
The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:
Balance sheet line item of asset or liability
Carrying amount Maximum loss exposure £m Assets
£m Liabilities £m Net £m
Carried interest receivable 33 – 33 33
Total 33 – 33 33
At 31 March 2015, the total assets under management relating to these entities was £2.2 billion (2014: £2.5 billion). The Group earned fee income of £31 million (2014: £33 million) and carried interest of £28 million (2014: £(1) million) in the year.
FINANCIAL S
TA
TEMENTS
29 RELATED PARTIES AND INTERESTS IN OTHER ENTITIES CONTINUED
Investments that are structured entities
The Group makes investments on behalf of itself and third party funds that it manages, for capital appreciation purposes. In a small number of cases, these investments fall under the classification of a structured entity as they are funds managed by the General Partner under a limited partnership agreement.
The Group’s attributable stakes in these entities are held at fair value.
The risk and maximum exposure to loss arising from the Group’s involvement with these entities are summarised below:
Balance sheet line item of asset or liability
Carrying amount Maximum loss exposure £m Assets £m Liabilities £m Net £m Unquoted investments 2 – 2 2 Total 2 – 2 2
At 31 March 2015, the total fair value of these investments, including stakes held by third parties was £33 million (2014: £53 million). The Group recognised an unrealised loss of £1 million from investments that are structured entities (2014: £1 million realised profit).
REGULATORY INFORMATION RELATING TO FEES:
Under AIFMD, 3i Investments plc acts as an Alternative Investment Fund Manager (“AIFM”) to 3i Group plc. In performing the activities and functions of the AIFM, the AIFM or another 3i company may pay or receive fees, commissions or non-monetary benefits to or from third parties of the following nature:
Transaction fees: 3i companies receive monitoring and directors’ fees from portfolio companies. The amount is agreed with the portfolio
company at the time of the investment but may be re-negotiated. Where applicable, 3i may also receive fees on the completion of
transactions such as acquisitions, re-financing or syndication either from the portfolio company or a co-investor. Transaction fees paid to 3i are included in portfolio income.
Payments for third party services: 3i companies may retain the services of third party consultants; for example for an independent director
or other investment management specialist expertise. The amount paid varies in accordance with the nature of the service and the length of the service period and is usually, but not always, paid/reimbursed by the portfolio companies. The payment may involve a flat fee, retainer or success fee. Such payments, where borne by 3i companies, are usually included in portfolio income.
Payments for services from 3i companies: One 3i company may provide investment advisory services to another 3i company and receive