Internal Control System and Risk Management
The aim of CapMan’s internal control and risk management is to ensure that the company’s business complies with regulation, and that risks associated with the company’s business and other objectives are identified, and appropriately monitored and managed.
The Board has the ultimate responsibility for ensuring that the risk management and internal control functions are appropriately organized. The Management Group is responsible for the day to day operations of the internal audit and risk management. The Management Group defines the main risks of the business and other functions and decides on the action plan for the most relevant identified risks. The Group’s CFO coordinates the arrangement of internal audit and risk management and, when necessary, reports to the Board on matters concerning risk management and internal control.
More information on risks relevant to CapMan’s business can be found in the Annual Report, in particular in the Board of Directors Report, in the corporate governance statement and in the appendixes to the annual accounts.
Internal control system
The Group’s internal control system comprises of risk management and compliance functions, both of which shall act in accordance with action plans that are annually ratified by the Board of Directors and shall report about its activities and observations to the operational management and Board of Directors. The internal control functions focus particularly on the operations and funds which are subject to authorisations from the Financial Supervisory Authorities. CapMan has assigned more for internal control functions during recent years in order to ensure the compliance with the regulatory requirements.
Taking into account the nature and extent of the company’s business, CapMan has not considered necessary to set up a separate internal audit function within the Group. An external service provider acts as an internal auditor to operations subject to authorisation granted by the Financial Supervisory Authority.
Fund level risk management
The fund level risk management is organised so that the decision-making and monitoring has been dispersed to different functions, which are independent of each other. The activities and responsibilities of the functions participating in the fund level risk management are described below.
Each fund managed by CapMan has an Investment Committee, which comprise of the partners of the strategy in question and/or other experienced investment professionals appointed by the CEO of such strategy. The Chairman of the investment committee is a person appointed by the Group’s CEO. The Investment Committee members do not generally partake in the management of the Group’s operational activities. Each fund’s Investment Committee makes investment proposals to the fund’s decision-making body which is usually the Board of Directors of the fund’s management company. The investment proposals presented to the decision-making body are always based on consensus of opinion among the members of the Investment Committee.
Valuation Committee & Valuation Controller
The valuation processes of the funds managed by CapMan vary depending on investment strategy and fund structure in question. Either the Valuation Controller (Real Estate investments) or Valuation Committee (Private Equity investments) is internally responsible for valuations. The Valuation Committee comprises of the Group’s CFO, the Head of Back office & Monitoring team and either the Risk Manager appointed for the fund or Head of the investment team in question.
In quarterly valuation process which is made in conjunction with interim financial reporting, the Valuation Committee of the fund in question valuates the underlying company assets. In regards of Real Estate investments, an external valuer valuates the underlying properties and the Valuation Controller verifies the validity of the principles used in the valuation report. The Valuation Committee or the Valuation Controller are responsible for ensuring that the same valuation principles are consistently used and that and that the principles comply with international valuation guidelines (European Association for Investors in Non-Listed Real Estate Vehicles (INREV) Valuation Guidelines or International Private Equity and Venture Capital Valuation guidelines (IPEVG).
The valuations are finally approved, depending on the fund, either by the Board of the fund’s Alternative Investment Fund Manager (funds established 2017 or after) or by the Board of the General Partner (funds established before 2017).
Monitoring of the investments
The monitoring team which is independent from investment teams and operating as a part of the Back office- and Monitoring function is responsible for coordinating quarterly valuation processes of the private equity funds, monitoring and forecasting the success of the Group’s funds and preparing the models for and calculating carried interest income.
CapMan’s legal counsels and the Risk Manager are responsible for reviewing each investment proposal prepared by the Investment Committee prior to the final approval of the investment by the Board of Directors to ensure that investments are made in compliance with the fund agreement and other obligations, applicable regulation and internal procedures.
CapMan’s General Counsel is responsible for ensuring that authorisations to make payments to the account of the funds and authorisations to make commitments on behalf of the funds are clearly defined and the use of these authorisations are regularly supervised.