This Policy forms part of Investment Manager’s internal control and governance arrangements. It explains Investment Manager’s underlying approach to risk management and gives key aspects of the risk management process. It is designed to manage the risks within Investment Manager’s business and is comprehensive and proportionate to the nature and scale of its activities.

Investment Manager is responsible for maintaining a sound system of internal control that supports the achievement of policies, aims and objectives while safeguarding the Alternate Investment Funds (AIF) and AIF contributors to which it acts as Investment Manager. Investment Manager follows an open and mitigating approach to risk management. Our core values and ethics provide the platform for our risk management activities.

A) Risk impacting the Fund

The risks impacting the Fund and the Investment Manager include the following broad categories:

Investment risk: This includes the risk that the Designate partners, Partners approved investment strategies fail to achieve the mandated objectives. This comprises of the debt investments even if instruments are collateral backed but no assurance that the enforcement against or disposition of any such collateral would satisfy the Portfolio Entity’s obligation. Investments further are subjected to market competitors influencing the instruments volatility and returns can sharply drain. The fluctuating movements of instruments no specific enforcement process and the time consumed for enforcement process is a great risk.

Diverse Investor Group: The Investors are expected to include persons and entities who, or which are resident of, or organized in, various jurisdictions. The Investors may have conflicting investment, tax and other interests with respect to their investments in the Fund. The conflicting interests of individual Investors may relate to or arise from, among other things, the nature of investments made by the Fund, the structuring or the acquisition of investments and the timing of disposition of investments. As a consequence, conflicts of interest may arise in connection with decisions made by the Investment Manager, including with respect to the nature or structuring of investments that may be more beneficial for one Investor than for another Investor, in particular with respect to Investors’ individual tax situations. In selecting and structuring investments appropriately for the Fund, the Investment Manager will consider the investment and tax objectives of the Fund and the Trust and its Investors as a whole, and not the investment, tax or other objectives of any Investor individually.

Risks associated with India: : Given that the focus of the Fund’s investment strategy and its success will depend in a large part on the macroeconomic factors and business conditions in India, the risks associated with investments in India, including but not limited to other related risks , could adversely affect the performance of the Fund and lead to losses. Hence, no assurances can be given as to the ability of the Fund to achieve any return on its Portfolio Investments. Risk such as Investment in Listed Securities, Unlisted Securities, Investment in Publicly Traded Securities or Derivatives, investment in Small/Mid-capitalization Companies

Management and Operational Risks: The risk of loss from inadequate or failed internal processes, controls or systems are not operating as intended to protect the organization against financial, legal or reputational harm. The Investment Manager may make inappropriate strategic choices or is unable to successfully implement the selected strategies. This includes Valuation Risk, Lack of Operating History, Failure to Meet Drawdowns by Investors, Restrictions on Withdrawal and Transfer, Distributions in Kind:, Dilution Risk, Liability for Return of Distributions etc. Termination of the Investment Manager, Reliance on the Investment Manager, Reliance on Professionals and Consultants, Dependence on Key Personnel etc

Liquidity risk: This pertains to whether a Fund has sufficient liquidity to meet its future obligations (including potential obligations) when they fall due. The Fund may incur various obligations to meet running costs (such as salaries, rent and utilities), investment commitments, investment recall obligations, to settle contractual financial market obligations (such as derivatives), for margin posting, and to pay capital withdrawals.

Counterparty risk: This is the risk that a counterparty fails to deliver on their contractual obligations, resulting in a loss to the Fund. The Board will put in place a framework that provides reporting and control procedures to address this risk.

Reputation Risk: Reputation risk is the risk of loss of reputation or credibility, which in turn could result in a commercial impact or other practical impact.

Technology risk: The risk that the technology that is adopted by the Fund does not adequately address the risks such as malicious attack, hacking, etc. and the Fund would be put to reputation loss on account of failed technology.

B) Risk Management Framework
The objective of the risk management framework is to ensure that the Fund operates within its risk tolerance and risk limits. This is achieved by

• Effective and efficient continuity of operations;
• Safeguarding of assets;
• Preservation and enhancement of reputation;
• Reliability of internal and external reporting;
• Compliance with applicable laws and regulations.

The focus of the risk management framework is on the following key elements, viz.

• Risk Assessment;
• Risk Management;
• Risk Monitoring.
  (i) Risk Assessment

Risks are analysed, considering likelihood and impact, as a basis for determining how they should be managed. Risk assessment consists of a detailed study of threats and vulnerability and resultant exposure to various risks. To meet the stated objectives, effective strategies for exploiting opportunities are to be evolved and as a part of this, key risks are identified and plans for managing the same are laid out.
(ii) Risk Management

In the management of risk, the probability of risk assumption, which may threaten the existence of the Investment Manager, is estimated with available data and information and appropriate risk treatments are worked out in the following areas:

• Economic environment and market conditions including macro-economic conditions;
• Credit crunch;
• Fluctuations in foreign exchange;
• Political environment;
• Change in legal, regulatory and tax regime impacting the Fund;
• Competition;
• Technology environment;
• Revenue concentration;
• Reliance on external consultants;
• Inflation and cost structure;
• Transparency and due diligence of investments;
• Reliance on external consultants while taking investment decisions in the investee company;
• Fraud, embezzlement or other financial wrongdoing in the investee company;
• Act of God, including natural calamities, wars and terror attacks.

The above list is illustrative only and any other information that is material to the basis for any investment by the fund should be included as a risk factor

(iii) Risk Monitoring

Once an investment decision is made, the risks are to be continually monitored against the base case version to ensure that risks do not result in negative returns.
The Investment Manager, while making any investment, shall also consider the risk at the investee company level to which the investment of the Fund will be subject.

A) Risk Mitigation Strategy

The Investment Manager recognizes that risk is an integral and unavoidable component of business and is committed to managing the risk in a proactive and effective manner. The Investment Manager believes that risks cannot be eliminated. However, it can be:

• Assigned to another party, who is willing to take risk, say by buying an insurance policy or entering into a forward contract;
• Reduced, by having good internal controls and continuous monitoring;
• Avoided, by not entering into risky businesses;
• Retained, to either avoid the cost of trying to reduce risk or in anticipation of higher profits by taking on more risk, and;
• Shared, by following a middle path between retaining, monitoring and assigning risk.
• Insurance coverage (fidelity insurance) against fraud.

B) Risk Mitigation Framework

The following factors would be considered while undertaking risk mitigation and reporting:

1. Investment Risk:

Investment risks are managed by:

• Having detailed investment procedures;
• Appropriate liquidity and treasury management;
• Drawing up cash flow projections and comparing them with actuals and stress testing.

2. Risk to Strategy:

Managing strategy risk is primarily achieved through strategic planning and implementation processes.

• Ongoing monitoring of the plans against actual results;
• Making course corrections.

3. Operational Risk:

Operational risk is the risk of loss, resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk is managed on an on-going basis by:

• Segregation of duties achieved by separating the investing function (undertaking by Investment Manager) from the transaction settlement, recording and reporting of investment activities (undertaken by an independent custodian)
• Appropriate operational, legal and taxation due diligence;
• Regular assessment and monitoring of internal controls;
• A robust recruitment and selection process which ensures that the people recruited adhere to strong ethical and professional standards;
• Effective application of policies, procedures and controls;
• Clear delegation of authority;
• Stringent vendor-selection processes;
• Effective budget setting and financial management;
• Stringent disciplinary procedures;
• Having appropriate code of conduct and conflict management policies;

4. Reputation Risk

Reputation risk is managed by constant interaction with all the stakeholders;

5. Technology Risk:

Technology risk is managed by:

• Installing appropriate hardware and software controls such as access controls, firewalls, etc
• Password management systems

6. Underlying Assets-level action items:

At the underlying assets level, the Investment Manager should be cautious in conducting stress test at investment level i.e. the impact of valuation of adverse changes in parameters, risk model validation, back test the assumption of the model and assumption of back tests.

7. Concentration risk at fund level:

Risks posed to us arising from concentrated exposure to a particular sector, micro-market, group or project. Fund proposes to focus on making investments in listed, unlisted and to be listed equity and/or debt securities of Portfolio Entities. The risk exist when there are investments made with the third party. Due diligence risk is also the risk while allocating the funds to third party while the third party may go bankrupt or may have some other business goals which are not in line with the funds objectives. Also there exist a risk at the fund level wherein it is pretty much possible that the managers or investee third party is not able to consummate the investments in favorable terms and thus there are draining the principle amount while no assurance that the Fund will be able to identify and complete investment transactions that are in keeping with the Fund’s desired rate of return and diversification principles and objectives, or that the Fund will be able to invest the Capital Commitments fully which in turn will have material adverse effect on the financial condition, results of operations and cash flow of the Fund.

8. Structuring-level action items:

At the structuring level, the Investment Manager should identify and mitigate the risk relating to jurisdiction, taxes, regulatory or any other statutory or regulatory matters apart from assessing and monitoring the credit risk and liquidity.

9. Credit risk at fund

Credit risk (or counterparty risk) is the risk of default by the counterparty on its contractual obligations. Investment Manager aims to ensure that credit risk is minimized by detailed deal evaluation that includes rigorous financial, legal and technical due diligence with particular emphasis on:

• Promoter and management track record and credibility including with regard to operating and
• management efficiencies; both formal and informal opinions sought
• Stress testing by financial modelling of the project and sensitivity analysis
• In-depth understanding of the regulatory aspects and policies under which the investment will be developed
• Independent evaluation of a transaction by Investment Committee of the Fund

Risk management is an on-going process and post investment, Investment Manager shall monitor the project progress and adherence to legal and regulatory compliance as well as financial and physical progress on site on a regular basis.

10. Safeguards against conflicts of interest

Following are some of the mitigants which shall be used to address Conflict of Interest.

• decisions taken by the risk management function are based on reliable data, which are subject to an appropriate degree of control by the risk management function, in accordance with the Fund Strategy and Fund Documents;
• Independence of the Investment Committee shall be maintained at all times,
• All conflicted transactions shall necessarily require prior approval of the Advisory Committee. In case where any of the members of Advisory Committee are interested parties, they shall recuse themselves from such a meeting and their vote and opinion shall not be considered in such a decision.
• the remuneration of those engaged in the performance of the risk management function reflects the achievement of the objectives linked to the risk management function, independently of the performance of the business areas in which they are engaged;
• the risk management function is subject to an appropriate independent review to ensure that decisions are being arrived at independently;
• the risk management function is represented in the governing body or the supervisory function, where it has been established, at least with the same authority as the portfolio management function;
• any conflicting duties are properly segregated.

E) Risk Mitigation/ Risk Control measures adopted by the Investment Manager

The Investment Manager shall strive to adopt the following measures to mitigate the risks arising out of business operations, liquidity, credit, industry, human resources, legal requirements, etc.

• Improved due diligence procedures;
• Closer board scrutiny of risk management activities;
• Better reporting and transparency;
• Defining flow of information to avoid any conflict or communication gap between two or more departments or functions;
• Undertaking effective steps on a continuing basis taking into consideration the various changing scenarios in the market

F) Development of culture towards risk management

As risk is inherent in portfolio investments, the Board and other staff must be cautious in relation to managing the risk as a part of the day to day activity of the Investment Manager. It is incumbent on every member of the organization to understand the risk environment in which the organization and themselves as individuals operate.