Risk management

Amvest organisation corporate risk strategy

The strategy of the Amvest organisation focuses on two key activities:

• Dutch residential area and property development in economically attractive regions.

• The set-up and management of Dutch investment funds and portfolios covering the residential sector.

The Amvest organisation is thus active across a large part of the real estate value chain. The link between these two key activities forms the basis of the Amvest business model: Amvest is able to create and benefit from synergy between these activities. Therefore, part of the corporate risk strategy focuses on adequately managing and mitigating the inherent ‘conflict of interest risk'.

The structure and governance of the AL&C Fund, as well as the oversight role from the the depositary, and the AFM, help mitigate this risk.

Internal control environment

The Amvest risk management framework is designed to facilitate strong governance and risk management within the AL&C Fund. The framework is based on a control framework , which clearly separates the function of financial and portfolio management from the function of risk management to guard against conflicts of interest.

Control framework

Fund management – Fund management is responsible for all fund-related activities, including managing the control environment and risks.

Risk & Compliance Officer (RCO) – The RCO coordinates, facilitates, reviews, and advises on risk management procedures in consultation with the Director Finance and Risk to safeguard the adequate management, control, and reporting of risks by the Fund Manager. The RCO acts independently from line management and remuneration is not tied to the Fund's performance.

Advisory Board – The Advisory Board serves as an escalation line for the RCO, independently of line and risk management. The Advisory Board is not part of the Amvest organisation. 

Assurance on risk relating to failure of systems and processes

The Fund Manager is structured with an affiliated Fund Services Provider (Amvest Management B.V.). The Fund Services Provider employs all employees of Amvest group and provides relevant management services to the Fund Manager. An ISAE 3402 Type II framework is in place to support a consistent, high-quality level of services by the Fund Services Provider to the Fund Manager. Relevant processes carried out by the Fund Services Provider under the responsibility of the Fund Manager are described at an operational level. Control objectives and controls as part of these processes are defined.

Each year, Amvest’s external auditor audits and reports on the design and effectiveness of controls as well as General IT Controls (GITC)  based on the ISAE 3402 Type II standard. Amvest selects key controls within the most important business processes to be audited, primarily related to acquisitions, property and individual unit sales, and operations. Fund Management periodically assesses these controls in close consultation with the fund team, the RCO, the Fund Services Provider, and the external auditor of the AL&C Fund.

For 2023 (1 January 2023 - 30 November 2023), the external auditor issued an unqualified ISAE 3402 type II report.

AL&C Fund Risk Management Framework

The Fund Manager uses a Risk Management Framework to appropriately identify, measure, manage, monitor, and report on risks. The Fund manager also sets the risk indicators, risk limits, and risk appetite for the defined risks.  The risk management performance of the AL&C Fund is assessed in close consultation with the Portfolio Manager and the RCO on at least a quarterly basis and more frequently in case of significant events. The findings of the assessment are included in the quarterly Investor report's Risk Management Dashboard. The Director Finance and Risk is responsible for the risk reporting to all relevant stakeholders.

Identified risks of the AL&C Fund

• Rental risk: the risk that a property cannot be rented out (again) within the envisaged period at the targeted rental price. This risk is particularly relevant for the AL&C Fund due to the limited number of care service providers (i.e. potential tenants) and the possibly difficult process of finding a (new) care provider for a care home. In addition, the AL&C Fund is at risk of being too dependent on one or more counterparties, particularly care service providers (concentration risk).

• Portfolio risk: the risk that the execution of the portfolio policy and the operational results are not in line with the portfolio plan. Critical variables, impacting the results:

• • Increase of land and construction cost may lead to declining yields.

  • Local authorities may become less accommodating regarding the care service concepts and projects of the AL&C Fund due to lobbying by competitors / alternative care providers.

  • Delays in the realisation of the acquisition pipeline may occur.

• Strategic risk: the risk that developments outside of the AL&C Fund, including economic, political, and demographic developments and disasters, force changes to the strategic objectives and target portfolio of the AL&C Fund. The most significant strategic risks for the AL&C Fund include:

• • Trend of increasing care-related regulation and care-related subsidies are under austerity pressure.

  • The competition amongst care service homes is increasing due to new entrants in the market.

  • A potential decrease of the AL&C Fund's target group due to innovation and the development of a cure for dementia.

• Counterparty risk: the risk that a counterparty fails to fulfil contractual obligations and / or harms the reputation of the AL&C Fund. The main counterparties for the AL&C Fund are tenants (care service providers), investors, property developers, and appraisers.

• Liquidity risk: the risk that liquidity shortages occur due to the insufficient coordination (by timing and amount) of cash inflows and outflows in managing the AL&C Fund.

• Performance risk: the risk that the targeted return and cash proceeds of the AL&C Fund are not achieved.

• Valuation risk: the risk that the value of the real estate portfolio in the financial reports of the AL&C Fund does not represent the fair value and / or is not in line with the IFRS accounting principles.

• Operational risk: the risk that daily management and business operations (sales and acquisitions, technical, administrative) are not performed in accordance with Fund documents, management agreements, budgets, contracts, and the RoFR Agreement. Operational risk is identified at three levels in the organisation:

• • Inadequate operational management by the Fund Manager.

  • Acquisition of new care properties.

  • Daily management and business operation of the care service providers.

• Conflict of interest risk: the risk that the AL&C Fund or AL&C Fund structure is – in the perception of Investors – inadequately equipped (governance, checks and balances) to operate in the event of conflicts of interest and / or the risk that a conflict of interest occurs due to inadequate governance, checks and balances.

Risk appetite and evaluation 2023

The AL&C Fund invests in income-producing real estate investments in the Dutch residential care sector. The generated returns from rental income are relatively stable and the AL&C Fund acquires new projects on a turnkey basis, without incurring development risk. In line with its INREV core fund risk profile, the AL&C Fund has a relatively low risk profile and correspondingly low risk appetite.

During 2023, the risk indicators and risk limits for the risk categories as defined by the Fund Manager were closely monitored. The negative economic impact of the Ukraine war a.o. through rising energy costs as well as the interest rate environment received special attention. Higher interest rates have a negative impact on fund returns through declining valuations. So far, the negative impact of the weaker economic environment on on the Fund’s operation has been limited..

Overall risk performance

None of the risk limits set by the Fund Manager for the defined risk categories were exceeded.

No material changes to the liquidity management systems and procedures occurred and stress testing on liquidity showed no breaches in relation to the distribution policy as described in the Terms and Conditions and the Portfolio Plan. Various scenarios on funding, cash, and liquidity were calculated and monitored. The uncalled equity commitments (EUR 264.8 million) create a solid funding position for the AL&C Fund going forward. 

Updated Risk Management Dashboard

The AL&C Fund’s Risk Management Framework is a dynamic framework. The Fund Manager assesses, monitors, and reviews the risk management function, policy, framework, and its risk appetite, indicators, and limits on an annual basis and reports on these matters to the Advisory Board and Investors of the AL&C Fund. If necessary, the Fund Manager adjusts previously described risk categories in close consultation with the RCO and its stakeholders. In the fourth quarter of 2023, the Fund Manager presented the updated risk management dashboard to the Advisory Board for annual evaluation.

Figure 8: Plotted risk (impact/probability)