Ferd Holding AS is owned 100% by the owner and his family, while in many cases the group’s assets and investments have shared ownership. The company measures its return as the increase in value-adjusted equity and dividend distributed to the owner. The owner’s willingness to accept exposure to risk is expressed in terms of the size of the risk of a fall in value-adjusted equity that is deemed acceptable, together with the level of liquidity risk that they are willing to accept.
Ferd’s corporate mission statement stipulates that the group is committed to value-creating ownership of businesses and investments in financial assets in situations that enable us to make good use of our expertise and the competitive advantages that result from our family ownership. Family ownership means that Ferd does not need to set an ownership period for our investments. With regard to investments in privately owned companies, Ferd’s focus is on active and value-adding ownership. Ferd enjoys significant flexibility, and does not have to hold a controlling interest. This flexibility can give a competitive advantage in comparison with other investment companies that depend on sources of capital with limited time horizons.
The group’s strategic development takes place through interaction between the Board of Directors, the Group Executive Board and the management of the business areas. The Board of Directors is the venue for decisions on major issues, such as strategic matters, new mandates and major investments. The returns achieved by Ferd are assessed in the context of the absolute return achieved over time and how this relates to the level of risk exposure that has been involved.
The responsibility for managing Ferd’s assets represents a significant task for the group’s organisation. It is important that Ferd develops its expertise and capacity in pace with growth in its overall assets in order to realise its strategies in a sound manner. The personnel resources available at both the group level and in the business areas give Ferd a sound competitive position in the markets in which the company is active. The group’s continuing growth will depend on Ferd successfully developing its organisation, and making good use of the breadth of the group’s expertise across organisational lines.
The approach to risk exposure taken by the owner and the Board of Directors is one of the most important parameters for Ferd’s activities. It defines Ferd’s risk bearing capacity, which is an expression of the maximum risk exposure accepted in the construction of Ferd’s overall portfolio. Ferd’s risk willingness and risk bearing capacity will vary over time, reflecting both the availability of attractive investment opportunities and the company’s view on general market conditions.
When changes need to be made to Ferd’s overall risk exposure, considerations of stability for the management of the business areas make it important that the changes are carried out without having too large an effect on the strategy of the individual business areas. The allocation of new capital, as well as the reallocation of capital between business areas, represents a systematic approach to making use of the group's risk-bearing capacity. Ferd has held, and continues to hold, a high exposure to market risk, and maintaining gearing at a relatively moderate level has been necessary to ensure that the overall risk exposure does not become excessive.
Ferd operates with a long-term investment horizon, and this means that the owner can accept substantial fluctuations in value-adjusted equity. The objective is to ensure that if Ferd suffers a permanent loss on any single investment, the loss will not be on a scale that would force Ferd to change the composition of the overall portfolio.
Criteria for the risk of fall in value
Ferd’s allocation of its capital must be consistent with the owner's risk tolerance. One measure of risk tolerance is how large a fall in value in monetary or percentage terms the owner is prepared to accept if the markets to which Ferd is exposed experience a sharp and rapid fall. The risk of fall in value, calculated on the basis of various assumptions, must not normally be greater than 35% of Ferd’s overall portfolio. The risk of fall in value provides guidance on how large a proportion of equity can be invested in asset classes with a high risk of fall in value. The risk of fall in value is measured and monitored with the help of stress testing. Risk of losses is expressed as the potential overall fall in value, expressed both as an absolute amount and as a percentage of value-adjusted equity.
Criteria for financial risk
Ferd Capital’s purchases of businesses and Ferd Real Estate’s investments are project financed through separate holding companies. This means each project is essentially assessed by the market, which protects Ferd’s other capital from some of the financial risk associated with increased borrowing. Ferd’s other assets, principally Ferd Invest and Ferd External Managers, therefore constitute the principal security for the parent company’s loan facilities. Ferd has always paid close attention to liquidity as part of its risk management. We have always held liquidity comfortably in excess of the minimum liquidity requirements that are set internally and in loan agreements at the parent company level.
Ferd has a proactive approach to currency exposure. If its exposure to any one currency is viewed as either too high or too low, Ferd will regulate this by taking out a loan in the relevant currency at the parent company level, or by using derivatives.
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